Here is one way to build a $420 million AI company: invent every single customer.

Puthugramam Chidambaran, the former CEO of Ideanomics (now known as a bankrupt shell), and former CFO Conor McCarthy were hit with a 10-count federal indictment on Thursday. The charges: running a continuing financial crimes enterprise, securities fraud, wire fraud, and conspiracy. Federal prosecutors say the pair fabricated "virtually all" of the company's customer relationships and revenue to extract hundreds of millions from investors and lenders.

That is not a typo. Not some of the customers. Not most of the customers. Virtually all of them. The entire business was, according to prosecutors, a fabrication designed to inflate the stock price and keep the money flowing.

The Con Was the Product

Ideanomics marketed itself as an AI and automation technology company. It raised capital, signed deals, reported revenue, and told a compelling growth story. The problem: prosecutors allege that virtually none of it was real. The customer relationships were invented. The revenue was fabricated. The whole thing was a paper castle built to keep investor money moving in one direction.

Reuters first reported the indictment, which was unsealed in federal court on April 17. Chidambaran faces the most serious charges, including running a continuing financial crimes enterprise, which carries up to 20 years. McCarthy is charged with conspiracy and wire fraud.

Why This Matters Beyond One Company

The AI industry has a due diligence problem. Investors poured $297 billion into startups in a single quarter earlier this year, with AI swallowing 81% of it. The pace of capital deployment is so extreme that the normal checks and balances that catch fraud early are being overwhelmed.

Ideanomics is not Anthropic or OpenAI. It was a smaller player that used the AI label to attract capital during the boom. But the playbook is familiar: slap "AI" on the pitch deck, promise transformative automation, and watch the wires clear. Prosecutors are alleging that this particular version of the playbook was fraud from the start.

The timing is brutal. OpenAI and Anthropic are both preparing for IPOs that will invite unprecedented public scrutiny of AI company financials. Every AI startup pitching investors this quarter just had its job made slightly harder.

What Happens Next

Chidambaran and McCarthy face years in prison if convicted. The company is already bankrupt. But the broader question is whether this case triggers a wave of enforcement. The SEC has been signaling for months that AI hype without substance is on its radar. This indictment, brought by federal prosecutors rather than the SEC, suggests the Department of Justice agrees.

If you are an AI startup founder reading this: your investors are now reading it too. And they are going to start asking harder questions.

First reported by Reuters.