Supermicro Stock Crashes 33% After Co-Founder Arrested in $2.5 Billion Nvidia Chip Smuggling Scheme Tied to China
Shares of Super Micro Computer Inc. (Nasdaq: SMCI) suffered one of the most dramatic single-day collapses in its history on Friday, plummeting 33% after federal prosecutors arrested the company’s co-founder on charges that he secretly funneled billions of dollars’ worth of Nvidia-powered AI servers to China — in direct violation of U.S. export control laws designed to protect national security.
Federal agents arrested Yih-Shyan “Wally” Liaw, 71, a prominent Silicon Valley executive who co-founded Supermicro in 1993 and is described as a close confidante of CEO and chairman Charles Liang. The arrest sent the stock tumbling more than 12% in after-hours trading on Thursday before the full weight of the indictment crushed shares in Friday’s regular session.
The move erased more than $6 billion from the company’s market value in a single day.
The Charges
Liaw, 71, co-founded Supermicro in 1993 and serves as a senior vice president of business development and a member of the company’s board of directors. Chang, 53, is a sales manager based out of the company’s Taiwan office, and Sun, 44, is described in the indictment as a “third-party broker and ‘fixer'” who worked with the other two.
Liaw, who co-founded Super Micro Computer and served on its board of directors, was arrested Thursday in California and released on bail. Sun, a contractor, is held awaiting a detention hearing. Chang, who worked in the Taiwan office of Super Micro, remains at large.
The three men are each charged with a count of conspiring to violate the Export Controls Reform Act, carrying a maximum prison term of 20 years if convicted. They also face counts of conspiracy to smuggle goods and conspiracy to defraud the United States government, each carrying up to five additional years in prison.
How the Alleged Scheme Worked
The pipeline prosecutors described was methodical and, by their account, increasingly audacious over a two-year period.
The DOJ claims that during 2024 and 2025, Liaw took a direct hand in the alleged conspiracy, working with Chang to find Chinese buyers who wanted the servers. From there, the Southeast Asian company — working in tandem with Liaw and Chang — would hand the servers off to a shipping and logistics company, which would allegedly strip the identifying packaging and put the servers in unmarked boxes before sending them to their true destination: China.
The men worked with executives at the pass-through company to provide false documents to the server manufacturer to further the deception. They used a shipping and logistics company to repackage the servers into unmarked boxes to conceal their contents before they were shipped to China.
The indictment alleges $2.5 billion worth of servers were sold to the Southeast Asian company, which then forwarded $510 million worth of servers — containing banned Nvidia chips — to final destinations in China.
The chips at the center of the case are among the most strategically sensitive semiconductors in the world. U.S. export controls ban the sale of Nvidia’s advanced B200 and H200 chips to China without a license, citing national security concerns. Tom’s Hardware These processors sit at the heart of modern artificial intelligence infrastructure, powering the large language models and AI training systems that governments and corporations are racing to control.
Hair Dryers, Dummy Servers, and a Bought-Off Auditor
The lengths to which the alleged conspirators went to evade detection were, according to prosecutors, remarkable.
The scheme involved efforts by the defendants and others to evade scrutiny by auditors from both Super Micro and the U.S. government — including by falsifying records and setting up “dummy” servers to which they removed and affixed serial numbers with a hair dryer.
Super Micro planned an audit of the Southeast Asian firm in 2025, which the defendants anticipated would focus on shipments of B200 servers. They coordinated to stage warehouses with dummy servers, photographs of which they sent to a Super Micro auditor who was supposed to be completing the inspection in August — but was instead “off-site enjoying entertainment paid for by Company-1,” the indictment said.
The deception extended to federal officials as well. Two of the defendants allegedly worked to stage the dummy servers at a warehouse rented by the pass-through company. Sun took photos and videos of the staged servers to one of the compliance auditors who, instead of conducting the audit, was “off-site enjoying entertainment paid for” by the pass-through company, according to the indictment.
The indictment details alleged efforts to evade U.S. export laws through false documents, staged dummy servers to mislead inspectors, and convoluted transshipment schemes, in order to obscure the true destination of restricted AI technology — China, according to John A. Eisenberg, Assistant Attorney General for National Security.
Racing the Clock — and a Telling Emoji
In January 2025, the Biden administration unveiled sweeping export controls on Nvidia’s global AI chip sales, an expansion of rules that covered China and around forty other countries. That meant that shipments of Nvidia-powered servers to Southeast Asia would now need Washington’s permission, starting in mid-May.
Prosecutors say Liaw responded not by halting the operation, but by accelerating it. “We need to speed these up before May 13!” Liaw allegedly wrote to the Company-1 executive, sending a link to a White House press release.
The recklessness allegedly extended to his private communications. When a broker who had bought Nvidia-powered servers from the Southeast Asian company sent Liaw a text message containing a link to an announcement about Chinese nationals being arrested for smuggling AI chips into China, Liaw allegedly responded with sobbing emojis.
The Market Fallout
The stock market’s verdict was swift and severe. Shares of Super Micro fell 33% on Friday after a federal court released the indictment, with Liaw controlling approximately $464 million worth of Super Micro shares, according to FactSet.
The collapse compounds what has been a turbulent period for the Nasdaq-listed server maker. Super Micro rode a historic surge in demand for AI infrastructure to a peak valuation exceeding $60 billion in 2024. That run has since cooled significantly, pressured by accounting scrutiny, the resignation of auditor Ernst & Young in 2024, and the subsequent appointment of BDO as a replacement.
The arrest of a co-founder and board member now introduces a fresh layer of legal and reputational risk that analysts say could prove deeply consequential.
Supermicro’s Response
Super Micro Computer is not named in the indictment. The company released a statement saying it has placed Liaw and Chang on administrative leave and terminated its relationship with Sun.
Super Micro Computer said on Friday that Liaw had resigned from the board, effective immediately.
The company stated the alleged conduct “is a contravention of the Company’s policies and compliance controls, including efforts to circumvent applicable export control laws and regulations,” adding that it “maintains a robust compliance program and is committed to full adherence to all applicable U.S. export and re-export control laws and regulations.”
Nvidia’s Position
Nvidia, which is not named in the indictment as a defendant, distanced itself from the alleged scheme. Nvidia CEO Jensen Huang said the chipmaker is restarting manufacturing to fulfill H200 purchase orders from China, as earlier this year, Nvidia had received licenses to export the H20 chip to China. The company said strict compliance is a top priority and that unlawfully diverted systems receive no service or support from the chipmaker.
The case does not allege that Nvidia had any knowledge of or involvement in the diversion.
A Broader Warning Shot
Legal and policy experts say the indictment represents a significant escalation in the U.S. government’s enforcement posture on AI chip export controls.
Chris McGuire, a senior fellow for China and emerging technologies at the Council on Foreign Relations, said the indictment shows the government should more closely examine the “glaring loopholes” of exporting through Southeast Asia. “This operation is further evidence that China is aggressively stealing U.S. technology to help power its AI industry — which is unsurprising, given U.S. AI chips are far superior to any chips the Chinese can make,” McGuire said.
“Crimes involving sensitive technology must be met with swift action, otherwise the law is meaningless,” said Jay Clayton, the Trump-appointed U.S. Attorney for the Southern District of New York and former chairman of the Securities and Exchange Commission.
The case arrives at a delicate moment in U.S.-China technology relations. The Trump administration has simultaneously tightened export enforcement while exploring limited chip sales to China under carefully negotiated conditions — a tension that the Supermicro indictment may now further complicate.
What Investors Should Watch
The immediate trading reaction reflects the severity of the charges, but analysts caution that several longer-term risks remain unresolved:
Revenue exposure: Super Micro derives a material share of its revenue from the unnamed Southeast Asian distribution channel at the center of the indictment. Disruption to that pipeline could affect near-term earnings.
Partner relationships: Any move by Nvidia to distance itself from Super Micro as a distribution partner would have significant implications for the company’s core server business.
Regulatory scrutiny: A widening of the federal investigation to include the company itself — which is not currently a named defendant — remains a risk that markets will continue to price in.
Board stability: With Liaw’s resignation, Super Micro’s board now consists of eight directors. Questions remain about governance and leadership continuity as the legal process unfolds.
The Bottom Line
The arrest of a co-founder, a fugitive sales manager, and a third-party fixer on charges of orchestrating a $2.5 billion smuggling operation targeting America’s most sensitive AI technology marks one of the most significant tech enforcement actions of the decade. For Supermicro shareholders, the Nvidia supply chain, and U.S. policymakers navigating the AI arms race with China, the repercussions are only beginning to come into focus.
Super Micro Computer (SMCI) closed Friday down 33%. The company is cooperating with the U.S. government’s investigation.
