US Justice Department Accuses AI Startup iLearning Engines of $1.5B Fraud Scheme

The rapid expansion of the artificial intelligence sector has unfortunately also fueled a surge in financial fraud and misconduct. Among the most egregious cases is iLearning Engines, a once-high-flying AI startup that rapidly ascended to a $1.5 billion valuation—only to become the subject of a sweeping fraud investigation by the US Department of Justice.

In a scathing indictment, federal prosecutors allege that iLearning Engines, described as an “out-of-the-box AI platform that empowers customers to ‘productize’ their institutional knowledge,” has been fabricating nearly all of its customer relationships and revenue streams since January 2019.

The Department of Justice named Puthugramam “Harish” Chidambaran, founder and CEO of iLearning Engines, and Sayyed Farhan Ali “Farhan” Naqvi, the company’s CFO, as co-conspirators in what prosecutors describe as a “continuing financial crimes enterprise.” The pair faces multiple charges, including securities fraud and wire fraud.

According to the indictment, Chidambaran and Naqvi allegedly capitalized on the AI investment frenzy to mislead investors and lenders about the company’s growth and financial health. Prosecutors contend that the vast majority of iLearning’s reported customers and revenue were entirely fabricated.

“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.”
— US Department of Justice statement

Chidambaran was arrested in Maryland last Friday, while Naqvi was taken into custody in California. Prosecutors allege the two executives enriched themselves to the tune of millions, including over $500 million in common stock for Chidambaran alone. Additional compensation included a $700,000 salary between 2023 and 2024 and $12.5 million in restricted stock units.

The scale of the alleged fraud is staggering. In 2023, iLearning reported $421 million in revenue, purportedly from AI licenses sold to enterprise customers. The Department of Justice, however, contends this figure was artificially inflated through a complex network of sham contracts with fictitious clients, some of which involved tens of millions of dollars annually.

The alleged scheme reflects a broader trend of fraud within the AI sector. The FBI’s 2025 Internet Crime Report identified over 22,000 complaints related to AI fraud in 2025 alone, with estimated losses totaling approximately $900 million—a 33% increase from the previous year.

For more on AI-related scams:

• Man Pleads Guilty to Making $8 Million by Creating Music With AI and Using Bots to Drive Fake Streams