The Securities and Exchange Commission (SEC) has charged US data server producer Supermicro and its former CFO with a series of accounting reporting violations, and imposed over $17m (£13m) of penalties
The US regulator claimed the computer company and its former CFO, Howard Hideshima prematurely recognised revenue and understated expenses over a period of at least three years.
According to the SEC Supermicro executives, including Hideshima, pushed employees to maximise end-of-quarter revenue, yet failed to devise and maintain sufficient internal accounting controls to accurately record revenue.
As a result, Supermicro improperly and prematurely recognised revenue, including by recognising revenue on goods sent to warehouses but not yet delivered to customers, shipping goods to customers prior to customer authorisation, and shipping misassembled goods to customers.
The SEC also found that Supermicro misused its cooperative marketing programme, which entitles customers to reimbursement for a portion of cooperative marketing costs. It claims Supermicro improperly reduced the liabilities accrued for the programme in order to avoid recognising a variety of expenses unrelated to marketing, including for Christmas gifts and to store goods.
According to the SEC, Hideshima was on notice of these and other similar practices, yet failed to properly address them. The regulator also claimed that Hideshima, who signed or approved filings with the Commission that contained materially misstated financial statements, knowingly circumvented certain of Supermicro's internal accounting controls.
Without admitting or denying the SEC's findings, Supermicro has agreed to pay a $17.5m penalty.
Hideshima, without admitting or denying the findings, has agreed to cease and desist from committing or causing violations of the reporting, books and records, and internal accounting controls provisions and pay disgorgement and prejudgment interest totalling more than $300,000 and a $50,000 penalty.
Supermicro's CEO, Charles Liang, while not charged with misconduct, is required to reimburse the company $2.1m in stock profits that he received while the accounting errors were occurring, pursuant to the clawback provision of the Sarbanes-Oxley Act.
Melissa Hodgman, an associate director in the SEC's division of enforcement, said: ‘Reporting revenue in the wrong period gives investors a distorted view of a company's financial condition.
‘The SEC will continue to hold executives accountable when they exploit insufficient internal controls.’
Commenting on the settlement, Supermicro said this fully resolving a previously disclosed investigation into its financial accounting and disclosures for fiscal years 2014-2017. The company said it has already corrected for the effects of these matters in financial statements filed with the SEC, including in its annual report, filed on 17 May 2019, and on Form 10-K for the fiscal year ended 30 June, 2017. No further corrections are required.
Charles Liang, Supermicro chairman and CEO, said: ‘We are pleased to have settled this matter and put this investigation behind us.
‘Supermicro is committed to conducting our business ethically and transparently. We fell short of our standards, and we have implemented numerous remedial actions and internal control enhancements to prevent such errors from recurring.
‘Our strengthened financial accounting and management team will help us continue building value for shareholders and customers as we innovate in high-performance, high-efficiency server and cloud technology.’
