The case centers on allegations that iLearningEngines fabricated the vast majority of its reported revenues — $217.9 million, $309.2 million, and $420.6 million for fiscal years 2021, 2022, and 2023, respectively — and concealed that its dominant business partner, Experion Technologies, was actually a related party controlled by iLE insiders and their family members. Those allegations were first raised publicly in an August 29, 2024, Hindenburg Research report titled "An Artificial Intelligence SPAC With Artificial Partners And Artificial Revenue," which sent iLE's stock down 53.3% in a single day. By December 2024, iLE had restated its financials, received an SEC subpoena, placed its CEO and CFO on administrative leave, filed for Chapter 11 bankruptcy, and self-reported potential violations of law to the DOJ. It converted to Chapter 7 liquidation in March 2025.
Judge Deborah K. Chasanow of the District of Maryland held that plaintiffs Louis Leveque and Iqbal Al Hamid failed to adequately plead any of the three elements challenged by defendants on the Section 10(b) claim: material misrepresentation or omission, scienter, and loss causation.
On the related-party omission theory, the court held that plaintiffs' allegations — drawn largely from the Hindenburg Report — demonstrated considerable overlap in personnel between iLE and various Experion entities but failed to establish that the overlap constituted the significant influence or control over Experion required under the applicable GAAP standard, ASC 850-10-20. The court noted that iLE's bankruptcy filings identifying Experion MEA as an "insider" and "related party" carried limited weight because the Global Notes accompanying those filings expressly disclaimed that the designations constituted admissions under the Bankruptcy Code, and because the Bankruptcy Code definition of "insider" differs meaningfully from the GAAP definition of "related party."
On the fake-revenue theory, the court held that the Hindenburg Report's suspicion that iLE's circular transaction structure with Experion could facilitate revenue inflation did not establish that iLE actually inflated its revenues. The court applied Fourth Circuit precedent on round-tripping schemes, concluding that plaintiffs alleged nothing more than the mere existence of reciprocal dealing — insufficient where both legs of the transactions appeared to have economic substance. The court also rejected plaintiffs' argument that $87 million in wire transfers to Experion MEA revealed in bankruptcy proceedings demonstrated overstated revenue, finding that plaintiffs failed to explain how round-number, minimally described outgoing wire transfers indicated a lack of legitimate business purpose, particularly given the unclear extent of the netting arrangement between iLE and Experion.
The scienter analysis fared no better. The court held that allegations based on the defendants' executive positions, potential GAAP violations, administrative leaves, resignations during an ongoing special committee investigation, iLE's self-reporting to the DOJ, and a generalized motive to maximize company value were each insufficient under the PSLRA's strong-inference standard. Considered holistically, the court concluded it remained more likely that CEO Harish Chidambaran and CFO Sayyed Farhan Naqvi faced difficult GAAP questions and reasonably relied on auditor Marcum LLP's clean audit opinions, which stated that iLE's financial statements presented the company's financial position fairly, in all material respects, in conformity with GAAP.
The Section 11 and Section 15 Securities Act claims — brought against the individual defendants as signatories of the S-1 and S-8 Registration Statements and against Marcum as the certifying auditor — were also dismissed. The full basis for dismissal of those counts is not available from the source material provided for this article. The court also denied plaintiffs' motion to partially lift the PSLRA discovery stay. Because the amended complaint was dismissed in its entirety, the court found no reason to proceed with service on Balakrishnan Arackal, who had not yet been served and resides in India.