Super Micro Computer Inc. (NASDAQ: SMCI) is facing intense scrutiny after its auditor, Ernst & Young LLP (EY), abruptly resigned, citing concerns over the company’s commitment to integrity and transparency. The resignation has triggered a steep decline in Super Micro’s stock, leaving investors and analysts wondering whether the company is engaging in financial misconduct — or simply operating with a cultural approach that clashes with Western corporate norms.

A thread by X user “siliconmemes” (@realmemes6) exploring these contrasting possibilities has ignited debate, with some seeing EY’s exit as evidence of “cooking the books,” while others suggest cultural misunderstandings may be fueling the crisis.

At the core of the thread’s analysis is EY’s unexpected and rare decision to resign as Super Micro’s auditor. In an SEC filing dated October 29, EY declared it could no longer vouch for Super Micro’s financial statements, citing a breakdown in trust with management.

Specifically, EY stated it could “no longer rely on management’s and the Audit Committee’s representations” and was “unwilling to be associated with the financial statements prepared by management.”

“SMCI execs are cooking the books,” posted @realmemes6, adding, “I can’t imagine EY is doing this lightly — this is going to hurt their prospects.”

The auditor’s remarks and departure signal what appears to be an extraordinary governance crisis. In its resignation letter, EY raised concerns that Super Micro was not committed to integrity and ethical values as outlined in the COSO Framework, a widely accepted standard for corporate governance.

The thread dove into the cultural dynamics that may be at play in Super Micro’s alleged governance issues, pointing to potential differences in ethical standards between American and Chinese business practices. Super Micro’s leadership, largely Chinese, reportedly operates in a way that may prioritize loyalty and personal relationships over rigid legal compliance. This divergence, the thread suggests, might contribute to the misalignment between EY’s expectations and Super Micro’s actual practices.

“My understanding is SMCI is a Chinese company based in the USA. They speak Chinese in the office, hire ethnic Chinese engineers, etc.,” @realmemes6 wrote. “Loyalty was the top ethic. Obedience to obscure laws didn’t even make the list.”

The posts argue that this ethos might explain some of the governance issues flagged by EY, suggesting that while Super Micro’s leaders may not see their actions as unethical, their approach clashes with American corporate norms.

The thread goes on to illustrate this cultural gap with an anecdote about a Chinese business leader who admitted to keeping two sets of books — one internal and one public — without realizing that Americans would see this as institutionalized fraud.

On the other hand, another post on X by The Kobeissi Letter revealed an explosive claim that revolves around suspicious market activity in the days leading up to EY’s resignation. The account shared that, one week before EY’s announcement, an anonymous investor bought 3,000 put options on SMCI with a strike price of $29 — a high-risk bet that would only pay off if SMCI’s stock took a severe nosedive.

As Super Micro’s stock crashed over 35% after the resignation, these options skyrocketed in value by over 3,000%, raising the question: Did someone know this was coming?

The debate surrounding Super Micro’s governance is not new. In August, short-seller Hindenburg Research released an investigative report accusing Super Micro of financial misconduct and export violations. The report pointed out a nearly $1 billion relationship between Super Micro and two suppliers — Ablecom and Compuware — both controlled by CEO Charles Liang’s family. According to Hindenburg, this setup creates a “circular flow of business” that raises significant conflict-of-interest questions.

The thread suggests that such arrangements might be normal in a cultural context where loyalty and family ties are paramount but would likely be seen as problematic by U.S. investors and regulators.

“Chinese companies can run the world, but they can also be uninvestable for foreigners, to whom the leaders of the company owe nothing,” the thread noted, implying that Super Micro’s commitment may lie more with its internal network than with shareholders.

As social media scrutinizes Super Micro’s operations, the company is conducting an internal investigation through a Special Committee with legal and forensic advisers. However, the committee’s findings are still pending, and Super Micro has downplayed EY’s concerns, stating in its SEC filing that it “disagrees with EY’s decision to resign” but will consider any recommendations once the review concludes.

Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.