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AI software company iLearningEngines has filed for Chapter 11 bankruptcy protection in Delaware, citing mounting pressures from a recent cyberattack, allegations of revenue misreporting, and a proposed securities class action lawsuit. The Bethesda, Maryland-based company, which reported up to $500 million in debt and assets, aims to restructure its finances to stabilize operations.

Mounting Challenges Lead to Bankruptcy

In its Friday petition, iLearningEngines disclosed debts between $100 million and $500 million. The filing follows a tumultuous period marked by a cyberattack that compromised its network and resulted in the misdirection of a $250,000 wire payment, which the company was unable to recover.

Additionally, iLearningEngines said the bankruptcy filing might trigger a default on $54 million in loans owed to East West Bank and Valley National Bank.

Hindenburg Report Sparks Legal Fallout

The company faced scrutiny after an August short-seller report by Hindenburg Research accused it of inflating its revenue from India by 99%. According to the report, iLearningEngines claimed $138 million in Indian revenue for 2022, while actual revenue was allegedly closer to $850,000.

This revelation led to a proposed securities class action in October, with shareholder Danny Walker alleging iLearningEngines fabricated revenue and expenses through a partnership with an undisclosed technology firm, causing significant financial damage to investors.

Cyberattack Adds to Pressures

In November, iLearningEngines disclosed that hackers had compromised its network, deleting emails and misdirecting payments. The cyberattack exacerbated financial difficulties and further undermined stakeholder confidence.

Board’s Decision to File

At a Dec. 20 board meeting, interim CEO Thomas Olivier informed directors about a potential financing offer from an unaffiliated entity. Later that day, the board voted to pursue Chapter 11 protection, citing the need to reorganize and regain stability.

Olivier expressed optimism about the filing, stating, “We appreciate the continued support of our customers, partners, and employees, and our hope is that this process will put us in a better position to serve those stakeholders going forward, allowing for a stronger, more robust business over the long-term.”

Case Details

The case has been assigned to U.S. Bankruptcy Judge Laurie Selber Silverstein. ILearningEngines is represented by Ian J. Bambrick of Faegre Drinker Biddle & Reath LLP.

Counsel for the company declined to comment.