Supermicro Computer (SMCI) crashed 27% on Friday after its co-founder was charged with smuggling $2.5 billion worth of Nvidia AI chips to China. Employees of the U.S. server maker helped smuggle machines with high-end Nvidia (NVDA) chips to China, using dummy devices to deceive an American inspector.

Per a U.S. indictment unsealed Thursday, SCMI co-founder and Senior Vice President Yih-Shyan “Wally” Liaw had an alleged role in the scheme involving billions of dollars of servers. The servers were assembled in the U.S. and shipped to Supermicro facilities in Taiwan before being delivered to customers, according to the indictment. After receiving the servers, the Southeast Asian company repackaged the servers and shipped them to China, the indictment said.

The indictment also said the two men and a contractor at Supermicro tried to deceive inspectors who visited the Southeast Asian company to confirm the servers hadn’t been diverted to China. The inspectors included people from Supermicro’s own compliance team and a U.S. Department of Commerce official who visited in December 2025, it said. Furthermore, the group used hair dryers to remove and affix labels so that dummy servers—nonfunctional replicas of Supermicro devices—looked like real products, the indictment said, attaching a photo from a surveillance camera showing a woman with a hair dryer in her hand.

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Supermicro placed Liaw and a second unnamed employee on leave and fired a contractor. The three defendants helped smuggle servers into China “through a tangled web of lies, obfuscation, and concealment—all to drive sales and generate revenues in violation of U.S. law,” said U.S. Attorney Jay Clayton for the Southern District of New York. “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. “Supermicro maintains a robust compliance program and is committed to full adherence to all applicable U.S. export and re-export control laws and regulations.”

SCMI tanked as much as 27% on Friday, and is now down 29% YTD. Its shares are trading near the bottom of its 52-week range and below its 200-day simple moving average.