SuperMicro Co-Founder Arrested in $2.5 Billion AI Chip Smuggling Scheme

Workers wielded hair dryers to peel labels off AI servers, pressing them onto hollow shells built to fool compliance inspectors — while the real machines, loaded with $2.5 billion in restricted technology, disappeared toward China. Federal surveillance cameras caught all of it.

That footage anchors an indictment unsealed Thursday charging Yih-Shyan Liaw, co-founder and senior vice president of Super Micro Computer Inc., with orchestrating an elaborate scheme to smuggle advanced AI servers to China in violation of U.S. export controls. The case strikes at the heart of America's effort to keep its most powerful computing technology out of Chinese hands.

U.S. authorities arrested Liaw in California and released him on bail. A second defendant, Ting-Wei Sun, was held for a Friday bail hearing. A third, sales manager Ruei-Tsang Chang, remains at large.

The indictment alleges the defendants directed executives at a Southeast Asian pass-through company to place orders with SuperMicro and other unnamed U.S. manufacturers. Servers were assembled in the United States, shipped to SuperMicro facilities in Taiwan, then handed to the intermediary — which repackaged them in unmarked boxes and concealed their contents before routing them to China.

To slip past inspectors, the defendants allegedly staged thousands of non-working dummy servers during compliance visits. Fabricated documents portrayed the pass-through company as a legitimate end user rather than a conduit for Chinese customers. No export licenses were obtained at any point, the indictment states.

"The conduct by these individuals alleged in the indictment is a contravention of the Company's policies and compliance controls, including efforts to circumvent applicable export control laws and regulations," SuperMicro said in a statement. The company was not named as a defendant.

SuperMicro placed Liaw and Chang on administrative leave and terminated Sun's contract. The company says it is cooperating fully with the government investigation.

Liaw, 71 and known as "Wally," co-founded SuperMicro in 1993 alongside Charles Liang and Sara Liu. He resigned in 2018 following an internal audit committee investigation, rejoined as an advisor in 2021, and returned to full-time executive duties in 2022. The indictment states he holds a 2.6 percent stake in the company — enough to make the alleged betrayal sting far beyond the boardroom.

The scheme ran hardest during a three-week stretch from late April to mid-May 2025, when defendants diverted at least $510 million in servers to China. Total server purchases between 2024 and 2025 reached approximately $2.5 billion, according to the indictment.

U.S. export controls on advanced AI chips to China took effect in October 2022. The restrictions cover Nvidia's B200 and H200 GPUs and servers built around that technology. In December 2025, the Trump administration announced a revised policy permitting conditional H200 exports with a 25 percent surcharge.

"The indictment unsealed today 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 obfuscate the true destination of restricted AI technology — China," said John A. Eisenberg, Assistant Attorney General for National Security.

"These chips are the product of American ingenuity, and NSD will continue to enforce our export-control laws to protect that advantage," Eisenberg added.

Each defendant faces charges of conspiracy to violate the Export Controls Reform Act, conspiracy to smuggle goods from the United States, and conspiracy to defraud the United States — a combined maximum sentence of 30 years per defendant.

SuperMicro stock dropped between 14 and 25 percent after the arrest news broke. The company accounts for roughly 9 percent of Nvidia's revenue, according to Bloomberg data cited by financial analysts.

Nvidia distanced itself sharply. A company spokesperson said strict compliance is a top priority, enforcement mechanisms are rigorous and effective, and Nvidia provides no service or support for unlawfully diverted systems.

The indictment references additional unnamed participants, including a figure identified only as "Broker-1," suggesting a wider network may have powered the operation. Authorities have not publicly identified the Southeast Asian pass-through company or the specific Chinese entities that received the servers.

Jay Clayton, U.S. Attorney for the Southern District of New York, said the defendants ran a systematic scheme to flood Chinese customers with servers housing U.S. artificial intelligence technology.

"They did so through a tangled web of lies, obfuscation, and concealment — all to drive sales and generate revenues in violation of U.S. law," Clayton said. "Diversion schemes like those disrupted today generate billions of dollars in ill-gotten gains and pose a direct threat to U.S. national security."

SuperMicro's legal exposure arrives against an already troubled corporate backdrop. In 2020, the company paid a $17.5 million SEC civil penalty for accounting violations involving premature revenue recognition and understated expenses. Ernst & Young resigned as auditor in October 2024, citing an inability to rely on management representations. A December 2024 special committee report recommended replacing the CFO.

Chris McGuire, senior fellow for China and emerging technologies at the Council on Foreign Relations, called the operation further evidence that China is aggressively stealing U.S. technology to power its AI industry.

"Which is unsurprising, given U.S. AI chips are far superior to any chips the Chinese can make," McGuire said.

The hair dryers. The hollow servers. The forged paperwork. Behind all of it, prosecutors argue, sat a co-founder willing to hollow out the very company he built — and the national security architecture protecting the technology that defines America's edge in the next great power competition.