The founder and chief executive of a Nasdaq-listed artificial intelligence company has been arrested and charged for allegedly orchestrating a years-long scheme to fake revenue and mislead investors.
In a new press release, the U.S. Attorney’s Office for the Eastern District of New York says it has charged Puthugramam “Harish” Chidambaran, founder and former CEO of iLearningEngines, along with former CFO Sayyed Farhan Naqvi, with conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, wire fraud and running a financial crimes operation.
According to the indictment, iLearning, an AI business automation company, told investors it was generating hundreds of millions in revenue, but much of that was allegedly fabricated.
Prosecutors say the company created fake customers and signed sham contracts to make the business appear larger and more successful than it actually was. Authorities say some of the fake deals were signed by employees or even family members pretending to be executives at other companies.
To make the numbers look real, prosecutors say the company used a “round-trip” scheme, which involves sending the money raised from investors and lenders to fake or related entities. The funds were subsequently returned to iLearning to appear as real revenue.
The DOJ says the round-trip transactions totaled more than $144 million, helping inflate reported revenue that reached $421 million in 2023.
The company went public in April 2024 on the Nasdaq under the ticker AILE and quickly reached a market value of about $1.5 billion.
But after a research report raised questions about its finances, the stock plunged. The company later filed for bankruptcy, eventually collapsing.
Prosecutors say both executives personally benefited, with Chidambaran receiving stock worth over $500 million and Naqvi receiving millions in stock and cash to cover tax liabilities.
Says Joseph Nocella, Jr., United States Attorney for the Eastern District of New York,
“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. 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.”
If convicted of the continuing financial crimes enterprise charge, Chidambaran and Naqvi could spend decades behind bars.
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