Super Micro (SMCI) Stock Drops 22% After Co-Founder Arrested for Smuggling AI Chips to China

TLDR

• U.S. prosecutors charged three people tied to Super Micro, including co-founder Yih-Shyan “Wally” Liaw, with smuggling Nvidia-powered servers to China
• The alleged scheme involved at least $2.5 billion in diverted AI technology, with over $500 million moved in just weeks in mid-2025
• Dummy servers and falsified paperwork were used to fool both the company’s own compliance team and U.S. export control officers
• Super Micro placed two employees on leave and ended its contractor relationship after learning of the charges
• SMCI stock fell as much as 22% in after-hours trading following the unsealing of the indictment

Super Micro Computer (SMCI) stock dropped sharply in after-hours trading on Thursday after U.S. federal prosecutors unsealed an indictment charging three people connected to the company with smuggling billions of dollars worth of AI servers to China.

The charges came from the U.S. Attorney’s Office for the Southern District of New York. The three named defendants are Yih-Shyan “Wally” Liaw, a co-founder of Super Micro and a current board member; Ruei-Tsan “Steven” Chang, a sales manager in the company’s Taiwan office; and Ting-Wei “Willy” Sun, a contractor.

SMCI stock fell as much as 22% in extended trading after the indictment was released by a federal court in Manhattan.

The company itself was not named as a defendant. Super Micro said it was notified by federal prosecutors on Thursday and has been cooperating with investigators. It placed Liaw and Chang on administrative leave and ended its relationship with Sun.

The alleged scheme ran through a Southeast Asian company that acted as a front. That company received the servers, filed fake paperwork to suggest the equipment would stay in the region, and then had a separate logistics firm repackage the servers in unmarked boxes before forwarding them on to China.

The operation reportedly involved using hair dryers to strip serial number labels from the real machines and stick them onto non-working replicas — known in the indictment as “dummy” servers — which were left behind at storage facilities to deceive inspectors.

According to prosecutors, the defendants even used the dummy machines during a visit from a U.S. export control officer.

A $2.5 Billion Operation

The total value of diverted equipment since 2024 reached approximately $2.5 billion. More than $510 million worth of servers was allegedly sent to China between late April 2025 and mid-May 2025 alone.

Liaw, who controls around $464 million in Super Micro stock according to FactSet, was arrested on Thursday. Sun was also arrested. Chang remains a fugitive.

Prosecutors say Liaw was actively pushing to shift the scheme toward newer hardware. Text messages cited in the indictment show him asking a contact at the Southeast Asian company how many of Nvidia’s B200 chips — based on the Blackwell architecture — they could absorb per month starting in early 2025.

In a separate message, Liaw allegedly sent a link to a White House announcement on an upcoming AI export rule and suggested shipments needed to speed up before the rule took effect.

When a broker sent Liaw a link about Chinese nationals being arrested for AI chip smuggling, he allegedly replied with sobbing emojis.

Nvidia’s Response

Nvidia, whose GPUs were used in the servers at the center of the case, said export law compliance is a top priority. The company said it works closely with customers and the government on compliance programs.

The chips in question were not explicitly named in the indictment. However, Nvidia dominates the AI chip market, and its products are subject to strict U.S. export controls to China that have been in place since 2022.

In 2024, Super Micro disclosed that its auditor Ernst & Young had resigned. The company later brought in BDO as its replacement. Chang, according to the indictment, had arranged for what he called a “friendly” auditor to review data center facilities involved in the scheme.

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