Two Indian-origin executives of an AI startup, iLearning, have been arrested for alleged fraud. iLearning founder and former CEO Puthugramam “Harish” Chidambaran and ex-CFO Sayyed Farhan Ali “Farhan” Naqvi were detained on April 17 and presented in court. The charges relate to defrauding investors and shareholders, reportedly through false revenue figures and fabricated contracts.
iLearning, which marketed itself as an “out-of-the-box AI platform,” was founded in 2010. As per a release from the US Department of Justice, iLearning claimed to earn revenue by “selling licenses for its platforms to customers.”
However, the US Department of Justice claims that the startup, “fabricated virtually all its customer relationships and revenues.”
iLearning reached $1.5 billion market cap
Before going public, the company reported a revenue of $421 million in 2023. In April 2024, the company became publicly traded, securing $40 million in loan proceeds from a New York City financial institution.
An additional $20 million was obtained from another financial institution, and iLearning’s shares began trading on the NASDAQ under the ticker symbol “AILE.” The company achieved a market capitalisation of approximately $1.5 billion after going public.
US Attorney Joseph Nocella Jr. stated, “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.”
Fake revenue and contracts
Court documents allege that the company fabricated all its revenues, with agreements mostly signed by family members. An example of the fraud involved an associate of Chidambaran, who incorporated and opened bank accounts in the names of several purported iLearning customers.
Millions of dollars were transmitted from iLearning to an account controlled by this individual, who then cycled the funds through various accounts before returning them to iLearning. These round-trip transactions had an aggregate value exceeding $144 million.
Joseph added, “While the defendants pitched iLearning as a way to revolutionise training and education through AI, the truly artificial part of the defendants’ story was iLearning’s customers and revenues.”
In 2024, an investment research firm (name is unspecified according to DoJ’s press release) uncovered the fraud, publishing a report that led to a rapid decline in iLearning’s stock price. The company filed for Chapter 11 bankruptcy protection in December 2024, which was later converted to a Chapter 7 liquidation in 2025, marking the collapse of iLearning.
