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Super Micro Computer Inc (NASDAQ: SMCI) agreed to pay a civil penalty of $17.5 million to settle its alleged widespread accounting violations.  The California-based producer of computer servers and equipment is doing business as Supermicro.

The company’s Chairman and CEO Charles Liang said they are “pleased to settle” and put the SEC investigation behind them. He added, “We fell short of our standards, and we have implemented numerous remedial actions and internal control enhancements to prevent such errors from recurring.”

Liang further stated that “Supermicro is committed to conducting our business ethically and transparently. Our strengthened financial accounting and management team will help us continue building value for shareholders and customers…”

Allegations against Supermicro

The Securities and Exchange Commission (SEC) alleged that Supermicro and its executives engaged in improper accounting by prematurely recognizing revenue and understating expenses from 2015 to 2017.

The company’s executives allegedly pushed employees to maximize its end-of-quarter revenue. However, they failed to create and maintain sufficient accounting control to accurately record revenue.

Their failure resulted in Supermicro’s improper and accelerated recognition and reporting of revenue before obtaining customer acceptance, before the delivery of goods to customers, upon shipment of goods that were incomplete or misassembled, upon shipment to a large distributor, and while holding customers’ bills of landing.

In addition, Supermicro allegedly failed to properly account for extended warranties and under-reported certain expenses by misusing its cooperative marketing program to pay various unrelated expenses including warehousing costs for goods at quarter-end, shipping costs, and product repair costs.

Furthermore, the SEC accused the company of violating certain antifraud reporting, books, and records, and internal accounting controls provisions of the federal securities laws.

Supermicro agreed to settle without admitting or denying the allegations of the SEC.

Aside from the payment of the $17.5 million in civil penalty, the company agreed to cease and desist from violating Sections 17(a)(2) and (3) of the Securities Act and the reporting, books, and records and internal accounting control provisions of the Securities Exchange Act.

In a statement, SEC Division of Enforcement Assistant Director Melissa Hodgman 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."

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