Washington DC (STL.News) The Securities and Exchange Commission today charged Super Micro Computer, Inc., a producer of computer servers, and its former CFO, Howard Hideshima, with prematurely recognizing revenue and understating expenses over a period of at least three years.
According to the SEC’s orders, Super Micro executives, including Hideshima, pushed employees to maximize end-of-quarter revenue, yet failed to devise and maintain sufficient internal accounting controls to accurately record revenue. As a result, the orders find, Super Micro improperly and prematurely recognized revenue, including by recognizing revenue on goods sent to warehouses but not yet delivered to customers, shipping goods to customers prior to customer authorization, and shipping misassembled goods to customers. The orders also find that Super Micro misused its cooperative marketing program, which entitles customers to reimbursement for a portion of cooperative marketing costs. According to the orders, Super Micro improperly reduced the liabilities accrued for the program in order to avoid recognizing a variety of expenses unrelated to marketing, including for Christmas gifts and to store goods.
According to the SEC’s order against Hideshima, he was on notice of these and other similar practices, yet failed to properly address them. The order also finds that Hideshima, who signed or approved filings with the Commission that contained materially misstated financial statements, knowingly circumvented certain of Super Micro’s internal accounting controls. Super Micro’s CEO, Charles Liang, while not charged with misconduct, is required to reimburse the company $2.1 million in stock profits that he received while the accounting errors were occurring, pursuant to the clawback provision of the Sarbanes-Oxley Act.
“Reporting revenue in the wrong period gives investors a distorted view of a company’s financial condition” said Melissa Hodgman, an Associate Director in the SEC’s Division of Enforcement. “The SEC will continue to hold executives accountable when they exploit insufficient internal controls.”
Without admitting or denying the SEC’s findings, Super Micro has agreed to cease and desist from violating Sections 17(a)(2) and (3) of the Securities Act of 1933 and the reporting, books and records and internal accounting controls provisions of the Securities Exchange Act of 1934 and pay a $17.5 million 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 totaling more than $300,000 and a $50,000 penalty. Liang consented, without admitting or denying the findings, to reimburse Super Micro $2.1 million in stock sale profits.
The SEC’s investigation was conducted by Ian Dattner and Donato Furlano, with assistance from David Mendel of the Trial Unit, and supervised by Lisa Deitch and Peter Rosario.