Supermicro Co-Founder Indicted for Smuggling $2.5B in AI Chips to China

The U.S. Department of Justice has indicted three people linked to server maker Supermicro, including its co-founder, for illegally smuggling Nvidia AI chip-equipped servers to China. According to the indictment unsealed by the U.S. Attorney for the Southern District of New York on March 19, the defendants allegedly diverted $2.5 billion worth of servers to China through intermediaries in Southeast Asia.

Who Are the Three Indicted

The defendants are Yih-Shyan "Wally" Liaw (71), Supermicro co-founder, Senior Vice President, and board member; Ruei-Tsang "Steven" Chang (53), a sales manager in Supermicro's Taiwan office; and Ting-Wei "Willy" Sun (44), a third-party broker and "fixer." Liaw co-founded Supermicro in 1993 and joined its board of directors in 2023.

Liaw, a U.S. citizen, and Sun, a Taiwanese national, were arrested on March 19, while Chang, also a Taiwanese national, remains a fugitive. All three face charges of conspiring to violate the Export Controls Reform Act (up to 20 years), conspiring to smuggle goods (up to 5 years), and conspiring to defraud the United States (up to 5 years).

Peeling Labels Off with Hair Dryers

The smuggling scheme described in the indictment reads like a spy thriller. The defendants allegedly shipped U.S.-assembled servers to Taiwan, then routed them through a pass-through company in Southeast Asia, where they were repackaged into unmarked boxes and sent to China. Servers containing Nvidia B200 and H200 GPUs were delivered to China without the required export licenses.

The efforts to deceive auditors were equally elaborate. After the real servers had already been shipped to China, the defendants staged thousands of non-working "dummy" servers at a warehouse for inspection. Surveillance footage captured workers using hair dryers to remove labels and serial numbers from the actual servers and attach them to the dummies. In one instance, a compliance auditor skipped the on-site inspection entirely, instead enjoying entertainment paid for by the pass-through company.

The defendants' scheme became more brazen over time and resulted in massive quantities of servers with controlled U.S. artificial intelligence technology being sent to China. - U.S. Department of Justice

$510 Million Vanished in Six Weeks

According to the DOJ, more than $510 million worth of servers were diverted to China in just six weeks between April and mid-May 2025. The cumulative total reached $2.5 billion. U.S. Attorney Jay Clayton for the Southern District of New York stated that "diversion schemes like those disrupted today generate billions of dollars in ill-gotten gains and pose a direct threat to U.S. national security."

How Supermicro and Nvidia Responded

Supermicro was not named as a defendant in the indictment and said it is cooperating fully with the investigation. The company immediately placed Liaw and Chang on administrative leave and terminated its relationship with Sun. Liaw subsequently resigned from the board. In a statement, Supermicro said the alleged conduct "is a contravention of the Company's policies and compliance controls."

Nvidia also responded, saying that "strict compliance" with export laws is a top priority. "Unlawful diversion of controlled U.S. computers to China is a losing proposition across the board -- NVIDIA does not provide any service or support for such systems, and the enforcement mechanisms are rigorous and effective," a spokesperson said.

Glaring Loopholes in Export Controls Exposed

The U.S. has restricted exports of advanced AI chips to China since 2022, citing national security concerns. Yet this case starkly demonstrates the vulnerability of transshipment routes through Southeast Asia. Chris McGuire, a senior fellow at the Council on Foreign Relations, called the indictment evidence that the government should more closely examine the "glaring loopholes" of exporting through the region.

The Financial Times estimated in July 2025 that China secured roughly $1 billion in advanced AI processors in the three months following President Trump's tightened export controls. Meanwhile, the Trump administration has recently allowed Nvidia to sell its more limited H20 chips to China on the condition that 15% of chip sales revenues be shared with the U.S. government, walking a tightrope between control and engagement.

Shockwaves Through Silicon Valley

Supermicro shares plunged over 28% following the indictment news. Liaw was a well-known figure in Silicon Valley. Just days before his arrest, a photograph surfaced on social media showing him standing next to Supermicro CEO Charles Liang as Nvidia CEO Jensen Huang stopped by the Supermicro booth at GTC to shake hands.

As the technology hegemony battle between the U.S. and China over AI chip export controls intensifies, this case is a stark reminder that hardware supply chain security is every bit as critical as software security. In an era where advanced semiconductors have become a core national security asset, efforts to close the blind spots in export control frameworks are poised to accelerate.