Item — HN Reader

> 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...

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> 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.

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...

I completely missed that s4 aired earlier this year. I'm so glad I saw this comment.

After you watch the entire season if you are into the behind the scenes there were some pretty good interviews with the creators and performers talking about it - stop reading now and come back cause even the text in the links is spoilery

If you are not into the UK dance scene, this explains some of the music choices https://www.gq.com/story/how-industry-curated-the-best-sound...

https://variety.com/2026/tv/news/industry-season-4-episode-7...

https://www.avclub.com/industry-interview-myhala-and-marisa-...

https://www.avclub.com/surreal-watching-industry-epstein-fal...

https://www.indiewire.com/features/interviews/industry-seaso...

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.

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"

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

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

>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.

> "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.

That's what they meant by "round trip" transactions? Literally sending them a check and waiting for them to return it? And no other business relationship? And then lying about it using the received check?

That must be one of the least helpful new sentences I've read in a while. I thought it just meant they were seller financing all their customers by loaning them the money and they had gotten zero real revenue.

Well in this case it looks like it was just regular double sided fraud. They opened bank accounts in fake names and bought their own product to boost revenue. Much less interesting.

> an associate of Chidambaran, who previously worked as an iLearning vice president, incorporated and opened bank accounts in the names of several purported iLearning customers. Over the course of several years, the defendants transmitted millions of dollars from iLearning to an account controlled by this individual. This individual then sent those funds to other accounts he controlled in the names of other entities, before ultimately sending the money back to iLearning. The aggregate value of these round-trip transactions exceeded $144 million.

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.