San Jose, California-based Super Micro said it will “transition” to a new CFO with current finance chief David Weigand staying until his successor arrives; named Kenneth Cheung, currently VP of finance and corporate controller, to become chief accounting officer; and is “accelerating” its search for a chief compliance officer and a general counsel, according to a release and securities filing Monday.
The finance team shakeup is among the recommendations of an independent special committee tasked with investigating the integrity of Super Micro’s audit committee and company management, as well as their “commitment” to accurate financial statements, among other matters. The final findings of the investigation were detailed this week, with the review finding “no evidence of misconduct” by management, according to the release.
But the final report did note certain process “lapses” such as not promptly informing EY and the audit committee of the rehiring of individuals who had previously resigned from the company following a 2017 audit committee investigation. The company also did not inform EY before inking a June 2024 consulting arrangement, which has since been terminated, with the company’s former CFO, who resigned following the 2017 investigation, according to the report.
The special committee held the CFO accountable for those missteps even as it said the decision to rehire certain individuals stemmed from “reasonable” business judgement. “There were, however, lapses, including in ensuring guardrails were always in place and observed. The Special Committee determined that, because the Company’s Chief Financial Officer/Chief Compliance Officer (CFO/CCO) had primary responsibility for the process of rehiring these employees, he had primary responsibility for process lapses,” according to the report’s findings detailed in the release.
The tech company’s announcement on the investigation’s findings comes on the heels of Big Four accounting firm EY resigning in October from its position as Super Micro’s registered public accounting firm, with EY saying it had questions about whether the company was “committed to integrity and ethical values.”
The statement Monday from the company asserting the special committee found no evidence of misconduct on the part of management or the board appeared to buoy investor support. The stock rose about 11% to close at $42 Monday though shares ticked down 4.26% Tuesday to close at $40.21. The company, which develops and manufactures servers, is viewed as an artificial intelligence play, according to MarketWatch.
The pop in the stock Monday might have been irrationally optimistic given the mixed message that was delivered by the company, according to David P. Weber, program director of the Fraud and Forensic Accounting Certificate Program at Salisbury University Perdue School of Business in Salisbury, Maryland.
“They whitewashed the allegations with a triple message, saying nothing that the prior auditor believes was of concern is true, but the CFO is departing and he may have had a lapse of judgement,” Weber said in an interview. “It remains to be seen here whether the investigation was appropriate. If they were truly going to assure investors then they should perhaps release the findings of the full investigation itself.”
The special committee that conducted the investigation was supported by outside counsel from the law firm Cooley LLP as well as the forensic accounting firm Secretariat Advisors, LLC. Still, Weber questioned the independence of the report, noting that the investigation that took over three months included over 9,000 hours of work by Cooley and over 2,500 hours of review by Secretariat. That’s important, Weber said, as accountants must adhere to an independence and objectivity standard with regard to what they find. Meanwhile, a lawyer’s obligation is to their client, he said.
Going forward it will be key for investors to watch how two developments play out for the company, JPMorgan analysts in a Monday report led by Samik Chatterjee wrote. That includes whether the company’s new independent auditors, BDO, accept the findings of the special committee or undertake their own review of the matter, and whether Nasdaq grants Super Micro’s request for an extension of time to come back into compliance with its listing requirements.
Super Micro declined to comment further on the matter and EY and BDO could not immediately be reached for comment.
