Federal prosecutors charged iLearningEngines' former CEO and CFO with fraud. The allegation: they fabricated nearly all of the AI company's customers and revenue.
At least 90% of the $421 million iLearningEngines reported in 2023 was fake, according to the indictment. The scheme was simple. Forge contracts. Move money in circles. Send cash to supposed customers, then watch it come right back as "revenue."
iLearningEngines went public through a SPAC merger with ChaSerg Technology Acquisition Corp in April 2024. It hit a $1.5 billion market cap on Nasdaq before Hindenburg Research published their report: "iLearningEngines: An AI SPAC with Artificial Partners and Artificial Revenue." The stock cratered.
This is Hindenburg's second AI company takedown. They previously exposed accounting problems at Super Micro Computer, which triggered a DOJ investigation and temporary delisting. The short seller has a track record. When they publish, markets listen.
The due diligence failure here is staggering. ChaSerg sponsor Jonathan Serko and underwriter EF Hutton somehow missed forged contracts and circular payments before closing the deal. SPAC sponsors are supposed to vet targets. That clearly didn't happen. And it raises real questions about how many other SPAC deals sailed through with minimal scrutiny during the 2020-2021 boom.
Criminal charges are just the beginning. The SEC typically follows with civil enforcement. Shareholders who lost money when the stock collapsed will pursue class actions. The company filed for bankruptcy in February. For a SPAC market still reeling from high-profile failures, iLearningEngines is another warning sign that the industry's vetting standards were badly broken.