> they defrauded investors and lenders by fabricating "virtually all" of the now-bankrupt company's customer relationships and revenue.
> According to the indictment, the defendants used forged sham contracts to make it seem that iLearning's customers were real, and used "round trip" transfers of investor and lender funds -- meaning they sent money to purported customers, who then returned it to iLearning -- to manufacture revenue.
> At least 90% of iLearning's $421 million of reported revenue in 2023 was fabricated, the indictment said.
> The company went public in April 2024, and its market value on the Nasdaq peaked at $1.5 billion before a prominent short-seller questioned its reported revenue.
For the record the short sellers who blew up the fraud were Hindenburg Research. This is the second AI company they've discovered that is a scam, the other being Super Micro with their chip-selling scam: https://www.forbes.com/sites/tylerroush/2026/03/20/super-mic...
> "round trip" transfers of investor and lender funds -- meaning they sent money to purported customers, who then returned it to iLearning -
I thought a lot of public, high profile, AI adjacent sales were seller financed or financed by the seller investing in the purchaser. Is that the same thing?
No. If I sent you $100 you'd probably send that $100 back, since you didn't expect then and have no reason to accept money from me. If I now go to a third party and don't tell them about how I sent you money, I have a legitimate transfer receipt for you sending me $100.
Its both a fraud on the third party, whom I have provided incomplete information. But also on you, who have become an unwitting accomlish in my scam, at least from the point of view of the third party.
> used "round trip" transfers of investor and lender funds -- meaning they sent money to purported customers, who then returned it to iLearning -- to manufacture revenue.
They should’ve instead “bought stake” in the customer companies and then asked them to use that money to buy their “product” like the normal trillion dollar companies do.
There is probably some phrase for describing this type of business activity. "If it's sophisticated it's actually legal" (no fault settlement). As a limited legalist this is actually the way it works and it's somewhat normal. A better lawyer provides better advice and steers company activity towards more defensible practice. If all the major ai players want to set money on fire for totally unmaintainable hobbies then so be it.
There was a similar case in Japan recently: alt.ai
This company purported to sell AI transcription service. Raised capital from notable local VCs. Did IPO in Oct 2023.
It turned out that more than 90% of its sales were fake. The CXOs were arrested and the company was liquidated last month.
Personally I never get the appeal of going public on fake sales. By design, the amount you need to fake grows bigger and bigger over time. So the collapse is inevitable.
iLearningEngines .. hindenburg did some research ILearningEngines: An AI SPAC with Artificial Partners and Artificial Revenue (2 years ago) https://news.ycombinator.com/item?id=41390619
It's a real problem at this point. People still say "nobody went to jail for the GFC" even though over 200 people did in the US; it's just it took a decade and nobody actually paid attention a decade later when they went to jail.
Highest Profile Individuals Convicted
Kareem Serageldin (Credit Suisse): Widely recognized as the only high-level Wall Street executive to serve prison time directly related to the GFC.
No that's still about a decade out of date. TARP jailed IIRC 30 bank CEOs, it's just the cases took until 2017 or so and the meme had already implanted itself in people's brains. DoJ got so tired of people saying this that they put a database of all their convictions up but unfortunately it got DOGEd last year.
Many of the TARP convictions (the ones that involved the SEC) can still be found here, though:
The TARP investigations jailed people for that; that was it's main purpose. Taking the funding window required an audit, and people either lied on the audit (and got busted for that) or admitted to illegal lending or valuation on it (and got busted for that)
> It's a real problem at this point. People still say "nobody went to jail for the GFC" even though over 200 people did in the US; it's just it took a decade and nobody actually paid attention a decade later when they went to jail.
Did over 200 people in the US go to jail for the GFC? I just tried looking and I only see 1 person in the US. Iceland had about 25.
Hindenburg Research is great. They also did the Nikola expose (that bunch of shysters who claimed to have electric truck technology where their truck couldn't even move under its own power so they filmed it rolling down a gentle slope).
For anyone wanting to get into the weeds about detecting accounting fraud, the book "Financial Shenanigans" has lots of historical examples of ways company executives have cooked the books to make their public company financial statements appear more appealing to investors than they actually are.
A lot of these people do go to prison but know one pays attention long enough to notice.
This same scam was common during the dotcom boom in the 1990s. A lot of people went to prison but every generation needs to learn this lesson the hard way apparently.
If they arrest everyone who does a wash transaction to generate the appearance of revenue there aren't going to be many founders left standing in 2026.
When Armstrong's Tour de France doping was finally caught, the top 22 placed racers were all doping. It was the 23rd placed racer that was reportedly clean, and got the eventual first place.
Eric Adams is a Democratic politician, whom Trump's DOJ dropped charges for political favors from Adams. For the right bargain they don't even care about the party.
It appears what really ended their little scam was the $421 million of reported revenue based on complete lies.
Because lying to investors about product hasn't been really an issue lately, even Intel ~5 years ago did some presentations that were a complete fantasy back when they were desperate to keep their stock value but could not produce a chip smaller than 14nm.
If they prosecute CEOs based on lies to investors other than accounting, almost all AI startups would go down.
CEOs can say basically anything when it's talking about the future. They just have to include a safe harbor disclaimer about forward-looking statements.
> they defrauded investors and lenders by fabricating "virtually all" of the now-bankrupt company's customer relationships and revenue.
> According to the indictment, the defendants used forged sham contracts to make it seem that iLearning's customers were real, and used "round trip" transfers of investor and lender funds -- meaning they sent money to purported customers, who then returned it to iLearning -- to manufacture revenue.
> At least 90% of iLearning's $421 million of reported revenue in 2023 was fabricated, the indictment said.
> The company went public in April 2024, and its market value on the Nasdaq peaked at $1.5 billion before a prominent short-seller questioned its reported revenue.
For the record the short sellers who blew up the fraud were Hindenburg Research. This is the second AI company they've discovered that is a scam, the other being Super Micro with their chip-selling scam: https://www.forbes.com/sites/tylerroush/2026/03/20/super-mic...
Supermicro isn't an "AI company", it's a Taiwanese origin x86 server/industrial/embedded hardware manufacturer with roots that go back 30 years.
Unfortunately, in 2026 even shoe companies are "AI companies"
We will never learn our lesson. Humanity just keeps repeating the same mistakes. Remember Long Island Ice Tea / Blockchain?
A sucker is born everyday
One a day? I think we're up to over 4 a second.
https://worldstats.io/clock
Half a decade ago they were all blockchain companies. Before that I don’t remember, what was the buzzword, big data?
Extremely briefly: metaverse. But yeah before that big data and SaaS had quite a run.
"Cloud" for a bit too
And before that, dot-com: https://www.forbes.com/2001/01/09/0109zapata.html
Some things will never change
> "round trip" transfers of investor and lender funds -- meaning they sent money to purported customers, who then returned it to iLearning -
I thought a lot of public, high profile, AI adjacent sales were seller financed or financed by the seller investing in the purchaser. Is that the same thing?
I think the issue here isn't that they did seller financing but rather there was not an actual buyer at all.
No. If I sent you $100 you'd probably send that $100 back, since you didn't expect then and have no reason to accept money from me. If I now go to a third party and don't tell them about how I sent you money, I have a legitimate transfer receipt for you sending me $100.
Its both a fraud on the third party, whom I have provided incomplete information. But also on you, who have become an unwitting accomlish in my scam, at least from the point of view of the third party.
> used "round trip" transfers of investor and lender funds -- meaning they sent money to purported customers, who then returned it to iLearning -- to manufacture revenue.
They should’ve instead “bought stake” in the customer companies and then asked them to use that money to buy their “product” like the normal trillion dollar companies do.
There is probably some phrase for describing this type of business activity. "If it's sophisticated it's actually legal" (no fault settlement). As a limited legalist this is actually the way it works and it's somewhat normal. A better lawyer provides better advice and steers company activity towards more defensible practice. If all the major ai players want to set money on fire for totally unmaintainable hobbies then so be it.
They should've asked their iLearningEngine AI to learn how to sophisticate their process.
This was kind of the scam in season four of Industry which was loosely based on Wirecard scandal. Obligatory New Yorker story: https://www.newyorker.com/magazine/2023/03/06/how-the-bigges...
There was a similar case in Japan recently: alt.ai
This company purported to sell AI transcription service. Raised capital from notable local VCs. Did IPO in Oct 2023.
It turned out that more than 90% of its sales were fake. The CXOs were arrested and the company was liquidated last month.
Personally I never get the appeal of going public on fake sales. By design, the amount you need to fake grows bigger and bigger over time. So the collapse is inevitable.
They take home a salary which they pay themselves and is very likely quite hefty.
>Super Micro with their chip-selling scam
"Scam"
They sold chips to someone the government is mad at. Thats not really on the same level.
iLearningEngines .. hindenburg did some research ILearningEngines: An AI SPAC with Artificial Partners and Artificial Revenue (2 years ago) https://news.ycombinator.com/item?id=41390619
Federal investigations always take forever.
It's a real problem at this point. People still say "nobody went to jail for the GFC" even though over 200 people did in the US; it's just it took a decade and nobody actually paid attention a decade later when they went to jail.
Fall guys.
Highest Profile Individuals Convicted Kareem Serageldin (Credit Suisse): Widely recognized as the only high-level Wall Street executive to serve prison time directly related to the GFC.
No that's still about a decade out of date. TARP jailed IIRC 30 bank CEOs, it's just the cases took until 2017 or so and the meme had already implanted itself in people's brains. DoJ got so tired of people saying this that they put a database of all their convictions up but unfortunately it got DOGEd last year.
Many of the TARP convictions (the ones that involved the SEC) can still be found here, though:
https://www.sec.gov/enforcement-litigation/litigation-releas...
Very cool website. Looking through a few of those examples, holy Jesus there is a lot of fraud out there.
Fun read.
I'm sad DOGE killed the TARP litigation database because there was some wild stuff on it
What about the fraud that led up to the GFC -- pre-TARP? I think that's what people meme about.
The TARP investigations jailed people for that; that was it's main purpose. Taking the funding window required an audit, and people either lied on the audit (and got busted for that) or admitted to illegal lending or valuation on it (and got busted for that)
For a multi-trillion dollar fuckup involving an entire industry... that seems low.
TARP still has active IGs; if you know of criminal activity they missed you can report it to them.
The pain was multi-trillion, but the original fraud that caused the collapse wasn't.
> It's a real problem at this point. People still say "nobody went to jail for the GFC" even though over 200 people did in the US; it's just it took a decade and nobody actually paid attention a decade later when they went to jail.
Did over 200 people in the US go to jail for the GFC? I just tried looking and I only see 1 person in the US. Iceland had about 25.
Hindenburg Research is great. They also did the Nikola expose (that bunch of shysters who claimed to have electric truck technology where their truck couldn't even move under its own power so they filmed it rolling down a gentle slope).
For anyone wanting to get into the weeds about detecting accounting fraud, the book "Financial Shenanigans" has lots of historical examples of ways company executives have cooked the books to make their public company financial statements appear more appealing to investors than they actually are.
Unfortunately there is a real chance they get pardoned or just their cars dropped for a small sum of 1-5 million dinner.
The unscrupulous in the white house will take your money (for a pardon) no matter what the crime.
No, no, no... money doesn't change hands directly. It's investment in the regime's crypto coin in the proper amount.
Play with fire, and you get burned...
These scams are all too frequent today, and putting these guys and others like them in prison would act as a deterrent.
We'll see if our system can actually hold any white collar criminals accountable though...
A lot of these people do go to prison but know one pays attention long enough to notice.
This same scam was common during the dotcom boom in the 1990s. A lot of people went to prison but every generation needs to learn this lesson the hard way apparently.
They couldn't buy pardons in the 90's like they can in 2026. Nobody is going to prison.
great to insert partisan talking points here. the last admin has no culpability so this is a great argument. thanks.
If they arrest everyone who does a wash transaction to generate the appearance of revenue there aren't going to be many founders left standing in 2026.
amd that’s probably good
When Armstrong's Tour de France doping was finally caught, the top 22 placed racers were all doping. It was the 23rd placed racer that was reportedly clean, and got the eventual first place.
Pardon coming soon in 2027
Using the right channels, they can buy a pardon. Let's see how it unfolds.
No, that seems unlikely. They committed the cardinal sin of stealing from the rich.
Also probably why SBF is yet to be pardoned
He was a big supporter of the Democratic Party which would not necessarily lead to a pardon with the Republican administration.
He supported both parties.
Eric Adams is a Democratic politician, whom Trump's DOJ dropped charges for political favors from Adams. For the right bargain they don't even care about the party.
Trevor Milton received an unconditional pardon for his Nikola fraud last year.
Trump has no problem selling pardons to people who stole from the rich. It's a big club, and he's open for business.
It appears what really ended their little scam was the $421 million of reported revenue based on complete lies.
Because lying to investors about product hasn't been really an issue lately, even Intel ~5 years ago did some presentations that were a complete fantasy back when they were desperate to keep their stock value but could not produce a chip smaller than 14nm.
If they prosecute CEOs based on lies to investors other than accounting, almost all AI startups would go down.
CEOs can say basically anything when it's talking about the future. They just have to include a safe harbor disclaimer about forward-looking statements.
iLearningEngines? I guess we're all familiar with them and have thoughts and concerns about them. We don't. We're not.