Federal prosecutors have charged Puthugramam “Harish” Chidambaran, founder and former CEO of iLearningEngines, and former CFO Sayyed Farhan Ali “Farhan” Naqvi with running a years-long financial crimes scheme that, according to the indictment, “fabricated virtually all its customer relationships and revenues.” The company, which reached Nasdaq through a 2023 SPAC merger with Arrowroot Acquisition Corp., reported revenues reaching about $1.4 billion before its collapse into Chapter 7 liquidation. The case offers a sharp look at how a company built on alleged fiction survived long enough to trade on a major exchange.
How a SPAC merger let fabricated revenue reach public markets
iLearningEngines marketed itself as an AI-powered learning automation platform when it announced plans to list on Nasdaq through a merger with Arrowroot Acquisition Corp. in 2023. The SPAC route allowed the company to bypass much of the traditional IPO scrutiny that includes extended roadshows and deeper institutional investor vetting. That compressed timeline left less room for independent verification of the customer base and revenue figures the company presented to investors and lenders.
The scheme went largely unchallenged from inside the company until short seller Hindenburg Research published allegations against iLearningEngines, questioning its claimed customers and revenue growth. In response, the board formed a Special Committee to oversee an internal investigation on or after Aug. 29, 2024. That probe quickly produced damaging results. The Audit Committee determined that previously issued audited financial statements, including those in the April 22, 2024 “Super 8-K,” should no longer be relied upon. In other words, every major set of numbers the company had given the market was now suspect.
The board then placed Chidambaran and other executives, including Naqvi, on administrative leave while it tried to stabilize the business. The company also disclosed Nasdaq non-compliance due to delayed periodic filings, a red flag that often precedes delisting. By February 2025, auditor Marcum LLP resigned as the company’s independent registered public accounting firm, effective Feb. 13, 2025, withdrawing the last institutional check on the company’s financial reporting.
As the internal investigation widened, iLearningEngines continued to issue regulatory updates. In a subsequent current report filed with the SEC, the company detailed the audit firm’s resignation, the ongoing Special Committee review, and the mounting uncertainty over its historical financial statements. Those filings underscored how quickly a high-growth narrative had unraveled into a full-blown accounting crisis.
Federal charges and the path from Chapter 11 to liquidation
The U.S. Attorney’s Office in the Eastern District of New York charged both Chidambaran and Naqvi with operating a continuing financial crimes enterprise designed to defraud investors and lenders. Prosecutors allege the pair fabricated virtually all of the company’s customer relationships and revenues, inflating contracts and invoices to obtain financing and support the stock listing. If proven, those claims would mean nearly the entire business was fictional, with real cash flows replaced by paper transactions and circular money movements.
The indictment describes a pattern in which iLearningEngines purportedly created sham customers, falsified revenue, and misled auditors, all while raising capital on the back of its reported growth. Federal authorities say the defendants used the sheen of a Nasdaq listing and the credibility of audited financials to persuade sophisticated investors and banks that they were backing a fast-scaling technology platform rather than a hollow corporate shell.
The corporate entity followed a parallel descent through bankruptcy court. iLearningEngines and its affiliates filed Chapter 11 petitions in Delaware, commencing case number 24-12826. Chapter 11 typically gives a company time to reorganize and negotiate with creditors, preserving going-concern value where possible. But the court ultimately approved conversion of those cases to Chapter 7 liquidation on March 6, 2025, signaling there was not enough legitimate business left to restructure. Under Chapter 7, a trustee is appointed to marshal and sell whatever assets exist and distribute proceeds to creditors, with no expectation of the company emerging in its prior form.
The conversion process followed the standard playbook outlined by the U.S. Trustee Program, which supervises the administration of Chapter 7 liquidation cases. Once the court determined that reorganization was not feasible, the focus shifted from saving the enterprise to maximizing recoveries from any remaining intellectual property, contracts, or litigation claims. For shareholders, that shift effectively wiped out any residual value in their holdings.
What the case signals for SPACs and investors
The iLearningEngines collapse highlights ongoing concerns about the SPAC pathway to public markets. Because SPAC mergers can move faster and rely more heavily on projections and sponsor due diligence, they can be more vulnerable when management is intent on deception. In this case, a company that prosecutors say generated almost no real revenue still managed to clear the bar for a major U.S. exchange listing and raise substantial capital.
For investors, the case underscores the limits of relying solely on audited financials and exchange listings as signals of quality. It also shows the growing role of short sellers and independent researchers in surfacing red flags that insiders and gatekeepers may miss or overlook. For regulators and policymakers, the indictment and bankruptcy outcome will likely feed into broader debates over how SPACs are structured and what additional safeguards are needed to prevent another alleged mirage from reaching public markets.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
