Over the past five years, as the AI boom picked up steam before exploding post-ChatGPT, Super Micro’s shares soared over 3,000% and its reported revenue doubled to $7.12 billion, to earn it a glitzy debut on the Fortune 500. But accounting issues have continued to haunt the company: It settled with the Securities & Exchange Commission in August 2020 over two years’ worth of alleged accounting violations, and then in 2024 short-seller Hindenburg Research claimed Super Micro continued to engage in questionable accounting practices.

And now, things just got even more real. Super Micro’s auditor resigned in the midst of its work with the tech firm, a move generally considered to be one of the reddest of red flags in the financial and investment community. And after Super Micro broke that news to investors, auditor Ernst & Young came back with a World Series grand slam rebuttal. 

In a letter to the regulators, EY said it only agreed with the company’s disclosures in the first paragraph, the first sentence of the second paragraph, the third paragraph, the first three sentences of the fourth paragraph, and a few others. That’s it.

“We have no basis to agree or disagree with other statements of the registrant contained therein,” EY wrote to SEC commissioners. 

For investors, those can be read as fighting words. Super Micro’s stock tumbled 33% on Wednesday.

Governance expert and Georgetown University associate professor Jason Schloetzer told Fortune this type of resignation is unusual and is consistent with a “noisy withdrawal.”

“It’s pretty clear there are irreconcilable differences between management and the auditor that are severe enough to spill into the public domain,” said Schloetzer. “An auditor resignation is already in red flag territory, so this one will certainly get close scrutiny from capital markets participants and regulatory agencies. Management will have some explaining to do.” 

What went down at Super Micro? 

The auditor’s response was prompted by the disclosure Super Micro made this week announcing EY’s departure. Critically, Super Micro told investors it “does not currently expect that resolution of any of the matters raised by EY, or under consideration by the Special Committee, as noted below, will result in any restatements of its quarterly reports for the fiscal year 2024 ending June 30, 2024, or for prior fiscal years.” Generally, Super Micro’s disclosure that they don’t think these concerns will prompt them to correct their financials is meant to soothe investors that are skittish about potential accounting problems. 

The company formed the special committee in question after EY flagged concerns about its financial reporting to the board’s audit committee last July. In response, the board formed a special committee to investigate—and hired law firm Cooley LLP and forensic accounting firm Secretariat Advisors to probe. As of today, that review remains ongoing, according to Super Micro.

In a statement to Fortune, a Super Micro spokesman said it disagreed with EY and added it is working “diligently” to hire a new auditor. The spokesman emphasized that Super Micro does not believe it will need to issue any restatements or corrections to its financials. 

Accounting expert Francine McKenna told Fortune that the EY resignation went beyond the usual quiet exit auditors make when they slip away from an engagement. “There are noisy resignations and then there are resignations that bang a big giant gong—and this is as bad as it can get,” said McKenna, who authors The Dig newsletter.

In its resignation letter, EY wrote that it was no longer able to rely on management and the board’s audit committee, which is supposed to be made up of independent directors who oversee the company for the benefit of shareholders. “When you can’t rely on management, that’s bad,” said McKenna. “If you can’t trust the audit committee, there is something very wrong.”

A Super Micro spokesman told Fortune: “We have announced a first quarter business update call for Tuesday November 5th.” Not ideal timing, given that’s Election Day. Super Micro declined to comment further. 

Amy Lynch, former regulator with the SEC and Financial Industry Regulatory Authority, told Fortune it appears EY has “serious concerns about the company and contacted the SEC in order keep themselves from being charged in any subsequent enforcement action.”

“SMCI may very soon find itself under investigation by the SEC for accounting-related fraud, if not already,” said Lynch, founder and president of FrontLine Compliance. “The SEC acts very quickly in these circumstances.”

The SEC did not immediately respond to a request for comment.

EY’s abrupt departure is the latest in a pileup of problems at a company considered a Wall Street darling not that long ago. Super Micro got a warning letter from Nasdaq last month after it failed to file its annual financial report on Aug. 29. The stock was still trading on the tech-heavy exchange, but the company was given a 60-day notice to either pony up a 10-K or submit a plan to regain compliance.

Super Micro got an extension until Nov. 27 to deliver on its fiscal year 2024 audited financial statements. The company also implemented a 10-for-1 forward stock split that took effect Sept. 30, increasing its authorized shares from 100 million to 1 billion. Stock splits are commonly used to make shares more affordable to investors because it lowers the price per share. Nvidia did a split this year also. It can also boost liquidity and flexibility in equity compensation. Super Micro CEO Charles Liang’s salary was revised in 2021 to just a dollar a year and all his comp was converted into performance-based stock options, according to the company, with potential value of $60 million. 

What’s up with the short report?

In August, famed short-seller Hindenburg Research hit the company with a 19,000-word short report. It claimed to have found “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures” after a three-month investigation. Super Micro described the report as “false and misleading” in a letter to investors. 

That was after the SEC previously fined the company $17.5 million for alleged improper accounting from 2015 to 2017. Super Micro paid the fine without admitting or denying the findings. Former chief financial officer Howard Hideshima was also fined in the action—and cofounder and CEO Liang, while not charged with misconduct, had to repay the company $2.1 million in stock profits he received while the accounting errors were occurring—a compensation clawback.

It likely required a lot of heavy lifting from the audit committee. During 2018, the committee met 42 times, 38 of which were special meetings. In 2020, it met 15 times, with 11 special meetings. The grand total for the past three fiscal years is 47 audit committee meetings. On average, according to data from governance benchmarking analytics firm Esgauge, S&P 500 audit committees met about eight times a year for the past three years. 

Super Micro: A family affair

The company was founded in September 1993 by board chairman and CEO Liang and his wife, Sara Liu. A third cofounder, Yih-Shyan (Wally) Liaw was involved until January 2018 when he resigned all his positions as the company dealt with regulators following a previous audit committee investigation. But, as of May 2021, Liaw was back, advising Super Micro on development. He returned to full-time employment in August 2022 and rejoined the board in December 2023, according to the company’s most recent proxy report.

The company also involves multiple family relatives in its business entities, based on its disclosures. At least two sisters-in-law work at the company and a third loaned $12.9 million (plus interest) to Liang. The company’s most recent disclosure showed that he owed her $16 million. 

Cofounder Sara Liu’s brother, Hung-Fan (Albert), works for the company; Sara Liu’s sister-in-law, Shao Fen (Carly) Kao, works there; Sara Liu’s other sister-in-law, Mien-Hsia (Michelle) Hung, also works there.

In October 2018, Liang personally borrowed the $12.9 million from Chien-Tsun Chang, the spouse of his brother Steve Liang (also Charles Liang’s sister-in-law). Charles needed it to pay back margin loans to two financial institutions that had been secured by Super Micro’s stock, the company’s disclosures state. The loans were called in after Nasdaq suspended the stock from trading on Aug. 23, 2018 after Super Micro failed to file multiple quarterly and annual reports with the SEC. It was delisted from the Nasdaq Global Select Market and quoted on the OTC Market. It was relisted on the exchange on Jan. 14, 2020.

From there, the disclosed inter-company transactions and business relationships get even more complex. Super Micro has entered into a series of agreements with a Taiwan corporation called Ablecom Technology and one of its affiliates, Compuware Technology, according to Super Micro’s financial filings. 

Super Micro outsources server design and manufacturing to Ablecom Technology. In fiscal 2023, Super Micro bought $167.8 million in products from Ablecom, and as of June 2023, Super Micro owed Ablecom $36.9 million. Super Micro also paid Ablecom $12.1 million for “design and tooling” in fiscal 2023, according to Super Micro.

There’s another family relationship in that mix. The CEO of Ablecom is Steve Liang, brother of Charles, per Super Micro’s financial disclosures. The complexity intensifies from there—according to Super Micro’s most recent proxy statement,  Steve Liang and his family own 28.8% of Ablecom. Charles Liang and his wife Sara Liu own 10.5% of Ablecom. Bill Liang (brother of Steve and Charles) is on Ablecom’s board and is CEO of the other entity involved, Compuware. (Neither Charles Liang nor Super Micro own stock in Compuware and Super Micro doesn’t own stock in Ablecom or Compuware. Ablecom owns less than 50% of Compuware, the company reported.) 

Furthermore, Ablecom’s sales to Super Micro make up a “substantial majority” of its net sales, the company disclosed. For the fiscal years ended June 30, 2023, 2022, and 2021, Super Micro bought products from Ablecom totaling $167.8 million, $192.4 million, and $122.2 million, respectively. During the same period, Super Micro owed Ablecom $36.9 million, $46.0 million and $41.2 million, respectively. Super Micro paid Ablecom $12.1 million, $8.3 million, and $8.6 million, respectively, for design services, tooling assets and miscellaneous costs, per the company filings. 

Meanwhile, Compuware is a distributor for Super Micro in Taiwan, China, and Australia—and Super Micro outsources power design and manufacturing to Compuware. Compuware’s sales of Super Micro products to other businesses make up a majority of Compuware’s net sales. In fiscal 2023, Super Micro sold $36.3 million in products to Compuware and in June 2023, Compuware owed Super Micro $24.9 million. In fiscal 2023, Super Micro bought $217 million in products from Compuware, and in June 2023, Super Micro owed Compuware $66.2 million. Super Micro paid Compuware $2 million for “design and tooling.”

In addition, Super Micro and Ablecom jointly established Super Micro Asia Science and Technology Park in Taiwan “to manage shared common areas.” Each company contributed $200,000 for a 50% ownership stake in the venture, according to the company’s disclosures. 

Super Micro says its maximum financial exposure to Ablecom was $23.7 million in outstanding purchase orders as of June 30, 2023, and Super Micro’s maximum financial exposure to Compuware was $46.8 million in outstanding purchase orders as of June 30, 2023.

Super Micro also disclosed that a sibling of Yih-Shyan (Wally) Liaw, a board member and senior vice president of development, owns approximately 11.7% of Ablecom’s capital stock and 8.7% of Compuware’s capital stock.

For now, Super Micro’s spokesman said it will talk with investors on the Election Day call. But in a September letter to customers and business partners, Liang (the CEO and founder, not his siblings) emphasized the accounting delay that impacted its annual report and the Hindenburg issue wouldn’t impair its ability to deliver goods. 

“Importantly, however, when we announced the decision to delay our Annual Report filing, we indicated that based on the work done so far, we don’t anticipate any material changes in our fourth quarter or fiscal year 2024 financial results,” wrote Liang. “This is good news. I continue to have strong confidence in our finance and internal teams.”