Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D. Md.: Putative class action based on short seller report dismissed, (Mar 23, 2026)

By R. Jason Howard, J.D.

There are various other explanations for a stock price decline in the immediate wake of a short-seller report besides the report’s allegations being meritorious.

The Maryland District Court has granted all five motions to dismiss, and denied a motion to lift a stay on discovery, in a putative class action brought against iLearningEngines (iLE), and several of its officers and directors, alleging that the defendants made material misrepresentations and omissions which “deceived the investing public, artificially inflated and maintained the market price of iLE’s common stock, and caused iLE common stock purchasers to pay artificially inflated prices” (Leveque v. iLearningEngines, No. 8:24-cv-02900-DKC (D. Md. Mar. 3, 2026)).

iLE. iHealthEngines was founded in 2010, before changing its name to iLE in 2018. Through at least 2018, iLE described itself as a “Learning as a Service Platform” for the healthcare industry. In August 2020, iLE began describing itself as an “Artificial Intelligence Powered Learning Platform.” Arrowroot Acquisitions, Inc. (Arrowroot) was formed in 2020 as a special purpose acquisition company (SPAC). In May 2023, Arrowroot and iLE jointly announced the execution of a reverse merger agreement. On April 17, 2024, the merger closed and iLE went public.

Once it went public, iLE decided to register several tranches of shares with the SEC. The company used both Form S-8 and Form S-1 to register the various tranches. Incorporated into those were the company’s financial statements for 2021 through 2023 as well as an audit report stating that the financial statements presented the financial position of iLE “fairly, in all material respects,... in conformity with” generally accepted accounting principles. The company reported that most of its revenue and sales came from iLE’s “partner relationships with a ‘Technology Partner’ and value-added resellers,” but iLE never disclosed the identity of the Technology Partner in its public filings.

On August 29, 2024, the short-seller firm Hindenburg Research published an investigative research report about iLE titled “An Artificial Intelligence SPAC With Artificial Partners And Artificial Revenue” The Report identified the Technology Partner as Experion Technologies, FZ LLC (Experion). Its authors made two principal claims: (1) that Experion was an undisclosed related party, and (2) “the vast majority of iLE’s revenue is fake. The day the report was released, iLE’s stock price fell 53.3 percent. The company responded by denouncing the report as a scheme to profit at the expense of its investors. A series of press releases followed and on March 6, 2025, iLE converted its bankruptcy from Chapter 11 reorganization to Chapter 7 liquidation.

Complaint. On October 7, 2024, the securities class action complaint was filed. On July 31, 2025, the individual defendants filed motions to dismiss all counts asserted against them for failure to state a claim. The court explained that because the plaintiffs’ Securities Act and Exchange Act claims sound in fraud, they are subject to a heightened pleading standard under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (PSLRA).

The court first addressed the plaintiffs’ claim under Section 10(b) and Rule 10b-5 and explained that the plaintiffs failed to allege that iLE had a duty to disclose Experion as a related party so none of those alleged omissions were actionable. The other category of allegations pertained to the company’s misrepresentation of its revenue, but the court found that the plaintiffs failed to allege that the company made any false representations about its revenue. When the court considered all the allegations together, it found that the allegations did not “raise an inference of scienter at least as compelling as the innocent alternative.” In turning to the question of loss causation, the court found that “there are various other explanations for a stock price decline in the immediate wake of a short-seller report besides the report’s allegations being meritorious.” Because the plaintiffs failed to plead a primary violation, their control person claim failed as well.

The plaintiffs also brought a claim for violation of Section 11 of the Securities Act and a derivative claim for violation of Section 15 of the Securities Act against individual defendants, but the court found that the plaintiffs’ allegations were insufficient for statutory standing because a plaintiff bringing a Section 11 claim must “plead and prove that he purchased shares traceable to the allegedly defective registration statement.” Here, the court explained that the plaintiffs purchased their shares weeks to months after the registration statements and they alleged no additional facts that would “nudge traceability into the realm of plausibility.” Because the plaintiffs failed to state a claim under Section 11 against any defendant, their Section 15 claims failed as well.

Ruling. The court granted all five motions to dismiss and denied the motion to lift the stay on discovery as moot.

The case is No. 8:24-cv-02900-DKC.

Judge: Chasanow, D.

Attorneys: Nicholas Ian Porritt (Levi & Korsinsky, LLP) for Louis Leveque and Iqbal al Hamid. William Emerson Jacobs (Weisbrod Matteis & Copley PLLC) for Danny Walker. Anthony Jankoski (Faegre Drinker Biddle & Reath LLP) for iLearningEngines, Inc. Laura G. Ferguson (Miller & Chevalier Chartered) for Harish Chidambaran. Castell Abner, III (Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.) for Sayyed Farhan Naqvi. Lawrence Elliott Slusky (Paul Hastings, LLP) for Matthew Barger, Ian Davis, Bruce Mehlman and Michael Moe. Alexa G. Chinchilla (Kozyak Tropin & Throckmorton) for Thomas Olivier. Shirlethia Vantrese Franklin (Jones Day) for Marcum LLP.

Companies: iLearningEngines, Inc.; Marcum LLP

LitigationEnforcement: CorporateGovernance DirectorsOfficers FormsFilings FraudManipulation MergersAcquisitions ShareholderActivismNews MarylandNews