I am intrigued by this opinion in Walker v. Chidambaran, 2026 WL 787964 (D. Md. March 20, 2026), dismissing a securities fraud complaint against various former officers and directors of an artificial intelligence company called iLearnEngines (“iLE”).

iLE went public in a SPAC merger in 2024, and its SEC filings stated that a significant portion of its revenues and sales came from an unnamed “Technology Partner.”  The Technology Partner and iLE had a complicated web of relationships, buying and selling services from each other, the revenues of which may – or may not – have been netted out against each other (the registration statement appears to have been inconsistent on this point).  Prior to the SPAC merger, the SEC inquired whether the Technology Partner was a related party, and iLE answered no.

(Guess where this is going).

Anyhoo, things started to go south when short seller Hindenburg issued a report on August 29, 2024, identifying the technology partner as Experion Technologies. iLE’s founder and CEO was listed as Experion’s American contact in 2020, and his personal residence was the official residence of Experion Americas in 2022.  Experion India and Experion Middle East and Africa were 35%  and 45% owned, respectively, by the brother of an iLE officer.  Two iLE officers were directors and shareholders if Experion’s India affiliate in 2023, one of whom occupied various roles at various times of Experion Middle East and Africa; and Experion Middle East and Africa was partially owned by yet another iLE officer.  The Hindenburg report claimed that iLE’s revenues were “fake” as a result of round-tripping with Experion.

iLE denied the allegations but also formed a special committee to investigate; in the meantime, its founder insisted that its financial statements could be relied upon because they had received clean audit opinions (from Marcum, which became infamous for shoddy SPAC audits after it was sanctioned in 2023).

Soon thereafter, Marcum withdrew its audit opinions, iLE announced that none of its financial statements since 2020 could be relied upon, almost all of its top management were placed on administrative leave, and the whole thing ended in delisting and bankruptcy.  The bankruptcy filing identified two Experion entities as “insiders” and related parties.

Plaintiffs filed a 10(b) lawsuit, as one does in this situation, generally alleging that iLE’s financials were misleading for failure to properly account for round-tripping arrangements with Experion, and for misleadingly failing to identify Experion as a related party.

And yet, the district court for the District of Maryland rejected the allegations that there had been anything misleading in iLE’s SEC filings at all.

In order to qualify as a related party, the court explained, plaintiffs had to show the entities had overlapping management or members of their immediate families, or that one entity had enough control over the other to prevent it from pursuing its separate interests, and despite all the tangled overlapping relationships between Experion and iLE, the plaintiffs had failed to specifically identify how one was able to influence the other.  After all, reasoned the court, the founder of iLE might once have housed Experion America at his own personal residence, but that was two whole years before the SPAC merger.  And the bankruptcy code’s concept of “related party” is totally different than the GAAP concept.  To top it all off, “the Philip brothers’ relationship also does not render Experion a related party because Plaintiffs do not explain why the sibling relationship is sufficient to satisfy the significant influence or control test.”

Meanwhile, the fact that iLE collapsed into bankruptcy with no reliable financial statements hardly demonstrated that its Experion revenues were falsely accounted for.  After all, the registration statement said in one place that it was not netting amounts due to Experion against amounts due from Experion, and in another place said it was netting them, and therefore falsity could not be inferred because plaintiffs failed to identify which it was. 

I mean … I really don’t know what else exactly to say about this except that it strikes me as an especially egregious example of that thing where courts read the PSLRA to require a level of particularity in pleading that leaves literally no question unanswered, an impossibly high bar.

Anyway, there are frivolous securities cases, absolutely, I see them all the time, it’s a problem, but this kind of case is why, in general, I’m not terribly sympathetic when defense attorneys insist that we need to tighten the screws still further, that every decision in plaintiffs’ favor requires another trip to the Supreme Court, because, for sure, cases make it through the gauntlet that shouldn’t – but it cuts at least as much, if not more, the other way, and that’s a problem too.

No other thing.  No new Shareholder Primacy podcast this week, but back soon!