iLearningEngines executives arrested for $421M AI fraud scheme that fabricated customers

Federal Charges Target iLearningEngines Leadership

The U.S. Department of Justice has indicted Puthugramam Chidambaran, founder and former CEO of iLearningEngines, and ex-CFO Sayyed Farhan Ali Naqvi on 10 counts including running a financial crimes enterprise, securities fraud, wire fraud, and conspiracy charges 1

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. The indictment, made public in Brooklyn federal court, alleges the executives fabricated virtually all of the now-bankrupt company's customer relationships and revenue since January 2019 2

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. Chidambaran, 57, was arrested in Potomac, Maryland, while Naqvi, 44, was arrested in San Jose, California 3

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. The criminal enterprise charge carries a maximum sentence of life in prison.

Massive Scale of Fabricating Revenue

iLearningEngines marketed itself as an AI-driven business automation company with an "out-of-the-box AI platform" that sold licenses for educational and training platforms to healthcare companies and schools 1

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. However, prosecutors allege the company reported $421 million in revenue in 2023, with at least 90% of that figure completely fabricated 1

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. The indictment details how the defendants used forged contracts and sham agreements to create the illusion of legitimate customers. They allegedly employed "round trip" fund transfers, sending investor and lender money to purported customers who then returned it to iLearningEngines to manufacture the appearance of revenue 1

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Exploiting the AI Boom for Personal Gain

"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," said U.S. Attorney Joseph Nocella Jr. 4

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. The scheme allowed the executives to extract enormous personal wealth. Chidambaran allegedly received over $500 million in common stock, a $700,000 salary between 2023 and 2024, and $12.5 million in restricted stock units 2

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. The AI business scam represents one of the largest fraud cases to emerge from the recent surge in artificial intelligence investment.

From $1.5 Billion Market Value to Bankruptcy

The company went public on Nasdaq in April 2024, and its market value peaked at $1.5 billion before a prominent short-seller questioned its reported revenue 1

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. The scrutiny eventually led to the company's collapse. iLearningEngines filed for Chapter 11 bankruptcy protection in December 2024, then converted to Chapter 7 liquidation in March 2025 1

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. The company laid off all employees in February, leaving investors and lenders with massive losses 3

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Growing Pattern of AI-Related Fraud

This case highlights a troubling trend in AI fraud as criminals capitalize on investor enthusiasm for artificial intelligence technologies. The FBI's Internet Crime Report identified over 22,000 complaints related to AI-related scams in 2025 alone, with losses estimated around $893 million—a 33 percent increase from the previous year 4

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. The iLearningEngines prosecution signals federal authorities' commitment to scrutinizing AI companies more closely. Investors should watch for enhanced regulatory oversight and due diligence requirements as prosecutors work to protect market integrity. The case serves as a warning that fake customer relationships and forged contracts used for defrauding investors will face serious consequences, potentially deterring similar schemes as the AI sector continues its rapid expansion.