Quick Look:

  • The U.S. Attorney's Office for the Eastern District of New York announced Friday that it has filed fraud charges against the former CEO and former CFO of the defunct AI platform iLearningEngines, accusing them of fabricating "nearly all" customer relationships and revenue.
  • iLearning founder and former CEO Puthugramam "Harish" Chidambaran and former CFO Sayyed Farhan Ali "Farhan" Naqvi allegedly carried out a multi-year scheme to artificially inflate iLearning's revenue and deceive retail and institutional investors through "an intricate web of sham contracts with purported customers—often worth tens of millions of dollars per year."
  • "As alleged, the defendants capitalized on investor excitement over the AI boom, presenting investors and lenders with a rosy financial outlook built on lies," U.S. Attorney for the Eastern District of New York Joseph Nocella Jr. said in a statement. "While the defendants marketed iLearning as a way to revolutionize training and education through AI, the truly artificial part of the defendants' story was iLearning's customers and revenue."

Deep Dive:

According to an indictment filed April 15 in the U.S. District Court for the Eastern District of New York, the two executives face charges of operating a financial crime enterprise, wire fraud, and securities fraud. The indictment also lists five "co-conspirators"—unnamed in the document but known to the grand jury—who held various positions at the company and allegedly participated in the scheme.

The indictment shows that Chidambaran founded the company in 2010 and served as CEO until resigning around December 23, 2024; he was arrested Friday in Potomac, Maryland. Naqvi joined the company, formerly headquartered in Bethesda, Maryland, in 2019 and served as CFO and head of corporate development until resigning around December 23, 2024; he was arrested Friday in San Jose, California.

The charges come more than a year after the former AI unicorn filed for Chapter 11 bankruptcy protection, following a rapid fall from grace after going public. According to Reuters reporting at the time, the company was valued at $1.4 billion after completing a SPAC merger with Arrowroot Acquisitions in April 2024.

However, its valuation and stock price plummeted after a report in August of that year from the now-defunct short seller Hindenburg Research, which claimed that the vast majority of iLearning's revenue did not exist and that much of it actually flowed through an undisclosed related party.

Following the report, the company's stock plunged 54%, and iLearning faced investigations from the Department of Justice and the Securities and Exchange Commission, as well as class-action lawsuits from investors. According to SEC filings, iLearning filed for Chapter 11 bankruptcy protection in March 2025.

According to the indictment's timeline, Chidambaran and Naqvi were involved in artificially inflating the company's revenue for years before and throughout the SPAC merger.

The indictment alleges that from January 2019 through April 2025, Chidambaran, Naqvi, and the five co-conspirators carried out a scheme to deceive investors and lenders through "materially false and misleading statements and omissions relating to iLearning's revenue and the number of customers using its products."

The company offered cloud-based computing and AI solutions and claimed to earn revenue primarily by selling licenses for its education and training products to customers, including healthcare companies and schools. However, the indictment charges that the former CEO and CFO "vastly overstated" iLearning's revenue, "sometimes by hundreds of millions of dollars per year—representing over 90% of its annual revenue."

To justify these numbers to investors, Chidambaran and Naqvi had the company enter into "seemingly lucrative contractual arrangements" with major customers.

"In reality, the vast majority of these contracts were fake," the indictment states. The contracts involved shell entities owned or controlled by iLearning employees and related parties—under the control of Chidambaran and Naqvi—or "other entities controlled by friends and associates of Chidambaran and Naqvi, who agreed to enter into sham contracts in exchange for money and/or potential future business opportunities."

For example, at one point, iLearning entered into a purported agreement with a company referred to as "Entity 2," which stipulated that the latter would pay $50 million annually in exchange for access to iLearning's licensed products. However, the company later received comments from a potential institutional investor who said they could find no trace of "Entity 2" and viewed it as a "red flag."

Nevertheless, Chidambaran and Naqvi worked to create information about the entity to share with potential investors, with Naqvi describing Entity 2 to one such investor as one of iLearning's "top three customers," the indictment says.

The U.S. Attorney's Office declined to comment further beyond Friday's statement.