Dive Brief:
- The ex-CEO and CFO of iLearningEngines were charged with fraud after prosecutors alleged the former executives fabricated “virtually all” of the now-defunct AI platform’s customer relationships and revenues, according to a Friday announcement by the U.S. Attorney’s Office for the Eastern District of New York.
- Puthugramam “Harish” Chidambaran, the founder and former CEO of iLearning, as well as Sayyed Farhan Ali “Farhan” Naqvi, its ex-CFO, perpetuated a years-long scheme to defraud both retail and institutional investors, artificially inflating iLearning’s revenue through “an intricate web of sham contracts with purported customers — often purportedly worth tens of millions of dollars per year,” according to the announcement.
- “As alleged, the defendants exploited investor excitement over the AI boom and presented a rosy financial outlook to investors and lenders that was built on lies,” Joseph Nocella, Jr., United States Attorney for the Eastern District of New York said in a statement. “While the defendants pitched iLearning as a way to revolutionize training and education through AI, the truly artificial part of the defendants’ story was iLearning’s customers and revenues.”
Dive Insight:
The two executives are facing charges of operating a financial crime enterprise, wire and securities fraud, according to the indictment filed Apri 15 in the U.S. District Court for the Eastern District of New York. The indictment also lists five “co-conspirators” — unnamed in the filing but known to the grand jury — who held various roles at the business and allegedly contributed to the scheme.
Chidambaran founded the company in 2010 and served as CEO until he resigned on or about Dec. 23, 2024, according to the indictment, and was arrested Friday in Potomac, Maryland. Navqi, meanwhile, joined the formerly Bethesda, Maryland-based business as its CFO and head of corporate development at iLearning in 2019 and served in that role until his resignation “on or about” Dec. 23, 2024. He was arrested Friday in San Jose, California.
The indictments come more than a year after the one-time unicorn AI company filed for Chapter 11 bankruptcy protection, after undergoing a rapid fall from grace following its transition to a public entity the year prior. The company achieved a $1.4 billion valuation following its April 2024 special purposes acquisition merger with Arrowroot Acquisitions, Reuters reported at the time.
However, its valuation and stock price plummeted swiftly after now-defunct short-seller Hindenburg Research published a report in August of that year, claiming the vast majority of iLearning’s revenue was nonexistent, and that the majority of its revenue was actually run through an undisclosed related party.
Following the report’s release in August 2024, the business’ stock plummeted by 54%, and iLearning faced investigations from both the Department of Justice and the Securities and Exchange Commission, as well as class actions from investors. iLearning filed for Chapter 11 bankruptcy protection in March 2025, according to an SEC filing.
Chidambaran and Naqvi were engaged in actions to artificially inflate the company’s revenue years before and throughout its SPAC merger, according to the timeline laid out by the indictment.
From a period beginning in January 2019 to April 2025, Chidambaran, Naqvi and the five co-conspirators engaged in a scheme to defraud investors, as well as lenders, through “material misrepresentations and omissions” relating to iLearning’s revenue and the number of customers using its products, per the indictment.
The business, which offered cloud-based computing and AI solutions claimed to earn revenue primarily via selling licenses for educational and training products to clients, which included healthcare companies and schools. However, the former CEO and CFO “dramatically inflated” iLearning’s revenue “at times by hundreds of millions of dollars a year — representing more than 90% of its annual revenues,” the indictment alleges.
To justify those figures to its investors, Chidambaran and Naqvi entered the company into “supposedly lucrative contractual arrangements with large customers.”
“In reality, the vast majority of the contracts were fake,” according to the indictment. Rather, they were shell entities either owned and controlled by iLearning employees and associates — under the control of Chidambaran and Naqvi — or “other entities controlled by friends and associates of Chidambaran and Naqvi who agreed to enter fake contracts in exchange for money and/or potential future business opportunities.”
In one instance, for example, iLearning entered into a purported agreement with a company referred to as “Entity 2” which stated the latter company would pay $50 million per year in exchange for use of iLearning’s licensed products. However, the business later received a comment from a prospective institutional investor who could find “no trace” of Entity 2 and cited it as a “red flag.”
Chidambaran and Naqvi nonetheless worked to create information about the entity to share with prospective investors, with Naqvi describing Entity 2 to one such investor as one of iLearning’s “three biggest customers,” according to the indictment.
The US Attorney’s Office declined to comment further beyond the Friday release.
