Hindenburg Research Targets iLearningEngines: A Scathing Report Raises Serious Allegations of Fraud

Hindenburg Report Exposes Significant Discrepancies in Revenue Claims, Questionable Corporate Governance, and Troubling Auditing Practices, Highlighting CEO Harish Chidambaran’s Role in the Controversy

Bethesda, Maryland — In a shocking new report, Hindenburg Research has set its sights on iLearningEngines (NASDAQ: AILE), a self-described “AI-powered learning automation” software company that went public in April 2024 via a SPAC deal. The report claims that iLearningEngines’ meteoric rise as a supposed pioneer in enterprise AI is built on questionable financials and dubious partnerships, drawing parallels to previous corporate investigations by Hindenburg.

Key Allegations:

1. Inflated Financials: Hindenburg Research accuses iLearningEngines, under the leadership of CEO Harish Chidambaran, of fabricating its reported revenue and expenses. The report points out that 96% of the company’s revenue and 100% of its cost of goods sold in 2022 were processed through an undisclosed related party referred to as a “Technology Partner.”
2. Undisclosed Relationships: The report reveals this “Technology Partner” as Experion Technologies, a UAE-based company with deep ties to iLearningEngines’ leadership. Hindenburg alleges that CEO Harish Chidambaran misled the SEC in November 2023 by claiming that Experion was not a related party. In reality, Experion has close connections to iLearningEngines’ leadership team, including Suresh Kumar, a senior executive at iLearningEngines, whose personal residence once served as the U.S. contact for Experion.
3. Corporate Governance Concerns: Hindenburg highlights troubling corporate governance issues, pointing out that senior employees of iLearningEngines, including Manoj Reddy, serve as directors and shareholders in Experion’s Indian affiliate. This raises serious concerns about the transparency and governance practices between the two entities.
4. Auditor Scrutiny: iLearningEngines’ auditor, Marcum LLP, is also under fire. Hindenburg emphasizes that Marcum has been fined $3 million in 2023 by the Public Company Accounting Oversight Board (PCAOB) for audit quality control issues, and separately fined by the SEC for deficiencies related to SPAC audits. Hindenburg suggests that Marcum failed to uphold proper auditing standards in iLearningEngines’ case as well, reflecting poorly on CEO Harish Chidambaran and his management team.
5. Financial Red Flags: The report uncovers discrepancies between iLearningEngines’ claimed revenue in India and its actual financial filings. The company reported $216 million in annual revenue from India, yet its sole Indian subsidiary reported only $853,471—a 99.4% gap. The involvement of Anand Menon, the head of iLearningEngines’ India operations, raises further questions about the authenticity of these financial claims.
6. SPAC Deal Scrutiny: The report also delves into iLearningEngines’ SPAC merger with Arrowroot Acquisition Corp, which took place in April 2024. Hindenburg alleges that the merger was driven by desperation on both sides, as iLearningEngines was nearly insolvent before the deal, holding just $800,000 in cash against $22 million in debt. The merger closed with funds in the SPAC’s trust account dropping 98% due to shareholders redeeming their shares for cash.

Potential Consequences:

Hindenburg Research concludes that the majority of iLearningEngines’ reported revenue likely does not exist and that the company’s relationship with Experion is a conduit for falsifying its financials. The research firm predicts that iLearningEngines will not remain a public company for long, citing the severity of the alleged misconduct.

The report has already sent shockwaves through the financial community, with iLearningEngines’ stock plunging as investors react to the revelations. Regulatory authorities, including the SEC, are expected to scrutinize the company further as these allegations unfold.

For iLearningEngines, this marks the beginning of a potentially long and difficult road ahead as it faces mounting scrutiny over its business practices. Meanwhile, Hindenburg Research, known for its investigative reports that have previously shaken major corporations, has once again proven its impact on the market.

Dubious Customer Relationships and Revenue Claims

The report casts doubt on iLearningEngines’ revenue claims by scrutinizing its 2022 acquisition of the Oklahoma-based training company, In2vate, LLC. The acquisition was valued at $722,000 and added over 2 million users to iLearningEngines’ platform, which is 41% of the company’s total reported user base. Despite this significant user base, Hindenburg’s review of In2vate’s customer contracts shows minimal revenue that could support iLearningEngines’ reported financial figures.

In2vate, which had only $60,000 in accounts receivables at the time of acquisition, purportedly contributed to iLearningEngines’ North American revenue estimate of $68 million in 2022. However, after analyzing available customer contracts, Hindenburg found that the revenue per user, estimated at $34 annually, does not align with the contracts’ low dollar amounts. One example includes a 2024 contract with Suwannee School District for just $2.75 per user per year, generating a total of $1,278 annually.

The report highlights that such contracts are unlikely to support iLearningEngines’ claims of significant revenue from In2vate’s user base, further casting doubt on the company’s reported financial health.

Questionable Partnerships in India

Hindenburg also questioned iLearningEngines’ partnerships in India, which have been a major driver of its revenue claims in the region. The report points to a June 2024 partnership announcement with UL Technology Solutions (ULTS), the technology arm of Uralungal Labour Contract Cooperative Society (UCCLS), a worker cooperative in Kerala, India. ULCCS has faced accusations of overpaying related party subcontractors and was involved in a money laundering investigation in 2020. The partnership’s terms were not disclosed, and the impact on iLearningEngines’ revenue remains unclear.

Hindenburg’s investigation found that iLearningEngines’ key customer in India, Vedhik IAS Academy, reported total revenue of just $649,000 in 2023, with minimal spending on digital content or infrastructure. This contradicts iLearningEngines’ claims of generating $138 million in revenue from India in 2022 and $163 million in 2023. The lack of significant spending by Vedhik IAS further raises questions about iLearningEngines’ actual revenue from this partnership.

Unfulfilled Promises of Expanding Education in India

Adding to the concerns, Hindenburg’s report highlighted iLearningEngines’ November 2022 partnership with an Indian entity, Metamorphosis Engineering & Skill Development Services Pvt. Ltd., which promised to build 1,000 visionary schools across the country. However, there has been no update on this ambitious project in over a year, and Hindenburg found no evidence that iLearningEngines is involved in any significant educational initiatives in India.

Learn N Inspire, the trade name under which Metamorphosis operates, has shown no recent activity. Its social media platforms have not been updated in over a year, and there are no mentions of iLearningEngines on Learn N Inspire’s website. The lack of progress on this project raises further doubts about iLearningEngines’ claims of being a major player in India’s eLearning sector.

Questionable AI Claims and Business Descriptions

The crux of Hindenburg Research’s findings revolves around iLearningEngines’ historical websites and business descriptions, which show no significant focus on artificial intelligence (AI) until recently. Archived versions of the company’s predecessor, iHealthEngines, reveal that as late as March 2017, the company made no mention of AI or machine learning in its platform descriptions. Instead, the focus was on a rewards-based system for promoting health education—a model not reflective of the AI innovations the company currently claims to pioneer.

Even the earliest version of the www.ilearningengines.com website from November 2017 only briefly mentioned “machine learning and rules engine.” This meager reference to AI appears more like a tactical shift to capitalize on the sector’s growing popularity rather than a core part of the company’s mission from the beginning.

Intellectual Property (Or Lack Thereof)

A search on Google Patents yielded no patents owned by iLearningEngines. The only related patent, US20120251993A1 from 2012, was filed under the predecessor iHealthEngines by CEO Chidambaran. This patent revolves around a reward-based system for promoting health education, with no notable AI component. This lack of intellectual property raises further doubts about iLearningEngines’ credibility as an AI leader.

Stock Plummets Amid Early Investor Sell-Off

On August 9, 2024, the SEC declared iLearningEngines’ S-1 registration filing effective, which allowed over 123 million shares of common stock, including nearly 14 million freely tradable shares, to be registered and traded. When the market opened on August 12, shares plummeted by over 50%, hitting a low of $2.65 before recovering slightly to close at $3.05.

Hindenburg interprets this sharp decline as a signal that early investors were eager to exit, knowing the true nature of their investment.

Auditor Controversy: Marcum LLP’s Troubled History

Adding to the concerns is iLearningEngines’ auditor, Marcum LLP, which has been embroiled in multiple controversies. Marcum was fined $3 million in June 2023 by the Public Company Accounting Oversight Board (PCAOB) for significant quality control issues and was also fined $10 million by the SEC for widespread audit deficiencies. These violations were primarily related to the firm’s work on Special Purpose Acquisition Companies (SPACs), the same mechanism through which iLearningEngines went public.

Despite these red flags, iLearningEngines confirmed Marcum as its ongoing auditor at the time of its merger in April 2024. Hindenburg suggests that Marcum’s troubled history should have prompted iLearningEngines to distance itself from the firm, yet the company has remained aligned with the controversial auditor.

Conclusion: A Company Unfit for the Public Market

Hindenburg Research concludes that iLearningEngines should have never been taken public. The report argues that the company’s AI claims lack substance, its financials are suspect, and it has no significant industry presence or customer base to validate its purported success.

The report goes further, accusing iLearningEngines of fabricating revenue figures through its relationship with an obscure “Technology Partner” called Experion, which Hindenburg believes is being used to falsify financials.

The future of iLearningEngines as a public company now looks bleak, with Hindenburg suggesting it won’t remain on the NASDAQ for long. Investors and regulators are expected to keep a close eye on the unfolding situation.

Impact on Indian Stock Market:

Following the Adani Group investigation, Hindenburg Research’s latest report on iLearningEngines has further shaken confidence in the Indian stock market. The allegations against iLearningEngines, coupled with its dramatic stock plunge, have intensified scrutiny of Indian companies involved in SPAC deals and AI sectors. This recent turbulence underscores growing concerns about financial transparency and corporate governance in India, potentially affecting investor sentiment and market stability in the region.