AI SPAC iLearningEngines Share Value Drops by 55% Following Hindenburg's Allegations of "Artificial Partners and Artificial Revenue"

Short Seller Hindenburg Research's Allegations

iLearningEngines, Inc., an artificial intelligence company, has seen a drop in its shares by more than 50% after Hindenburg Research, a short seller, alleged that the company has "artificial partners and artificial revenue". This is the second report by Hindenburg Research in a week, the first one being on Super Micro Computer. The firm, led by Nathan Anderson, stated that iLearningEngines was on the brink of insolvency when it merged with a SPAC sponsor that was in a hurry to finalize a deal.

Focus on "Technology Partner"

The report primarily focuses on a crucial yet unnamed "Technology Partner" of AILE. It states that almost all of the company's revenue and expenses (around 96% of revenue and approximately 100% of CoGs in 2022) seem to be run through this undisclosed related party. However, the company informed the SEC that the technology partner was not a related party, according to Hindenburg. The short seller claims to have "unmasked" the partner as a related party, which at one point shared an address with AILE's CEO's home residence.

Allegations by Hindenburg

Hindenburg alleges that the American contact for the "Technology Partner" Experion was listed as the CEO of iLearningEngines as per a web capture from 2020. A 2022 web capture listed the American address for Experion as the personal residence of iLearningEngines’ CEO. The latest Indian corporate records for Experion’s India affiliate list current iLearningEngines senior employees as directors and shareholders. UAE corporate records from June 2024 suggest that Experion is partially owned by the brother of iLearningEngines’ senior director of channel partnerships.

Claims and Counterclaims

Despite claiming to generate substantial and increasing revenue, iLearningEngines does not have a significant industry presence, does not name key customers or partners, and does not appear to do the volume of business it claims. Hindenburg wrote, "iLearningEngines claims its Indian market has an annual revenue run rate of $216 million. The financials for its sole Indian subsidiary reported ~$853,471 in revenue for its latest fiscal year, or ~99.4% less than iLearningEngines’ claimed revenue in the country." Hindenburg believes that the majority of iLearningEngines’ revenue is non-existent, and its relationship with the mystery 'Technology Partner' is merely a conduit for falsifying its financials. The short seller does not expect iLearningEngines to remain a public company for long.

Impact on Other Companies

Super Micro shares, another Hindenburg target, plunged more than 20% on news that the company was delaying its 10-K filing for FY 2024. The short seller had alleged that the semiconductor/server company, which has seen its stock skyrocket over the last few years during the AI bubble, could be engaged in accounting manipulation and self dealing among family members.

Bottom Line

The allegations made by Hindenburg Research against iLearningEngines, Inc. have had a significant impact on the company's share value. These claims, if proven true, could potentially lead to severe consequences for the company. What are your thoughts on these allegations? Do you think they hold any weight, or are they unfounded? Feel free to share this article with your friends and discuss it. Don't forget to sign up for the Daily Briefing, which takes place every day at 6pm.