The Securities and Exchange Commission (SEC) has initiated a civil case against Nathan Fuller, the founder of Privvy Investments LLC, alleging a cryptocurrency fraud scheme that amassed approximately $12.3 million from around 150 investors. Fuller operated under the business name Gateway Digital Investments and is accused of falsely promoting proprietary artificial intelligence (AI) trading bots designed for high-frequency crypto arbitrage. Investors were purportedly promised substantial returns, ranging from 40% to over 100% within short timeframes.
Key Takeaways
- The SEC has charged Nathan Fuller with defrauding investors of $12.3 million through a scheme involving fabricated AI crypto trading bots.
- Approximately 150 investors across multiple jurisdictions were targeted with promises of high, guaranteed returns.
- The SEC alleges that only a small fraction of the funds were used for actual crypto trading, with the majority allegedly misappropriated by Fuller for personal use or disbursed to earlier investors, indicative of a Ponzi-like structure.
- Fuller previously admitted to operating Privvy as a Ponzi scheme in a related bankruptcy proceeding, though the SEC’s current complaint does not reference this admission.
- The case highlights a continuing trend of fraudulent schemes leveraging AI as a deceptive marketing tool in the cryptocurrency space.
According to the SEC’s complaint filed in federal court in Houston, Fuller solicited investments between October 2022 and mid-2024. He represented that his AI bots autonomously executed trades across various cryptocurrency platforms to capitalize on minute price discrepancies. However, the agency claims that the bots were either non-functional or lacked the sophisticated AI and risk management features advertised. Evidence suggests that only about 3% of the total funds raised, approximately $380,000, was allocated to actual cryptocurrency purchases, yielding no profits.
The bulk of the funds, at least $6.2 million, was allegedly diverted by Fuller for personal expenditures including real estate, gambling, collectibles, and vehicles. Furthermore, the SEC contends that approximately $5.5 million was used to repay earlier investors, a characteristic common in Ponzi schemes. To allay investor concerns and maintain the facade of legitimacy, Fuller reportedly made false claims about possessing a Texas money-transmitter license, holding a surety bond, having FDIC-insured funds, and being covered by professional liability insurance. The SEC further alleges that Fuller fabricated an insurer and altered policy documents to support these misrepresentations.
In an effort to manage investor withdrawal requests, Fuller is accused of employing AI, specifically ChatGPT, to generate a deceptive letter from a fabricated entity, “Blockchain Audit Solutions.” This letter falsely informed investors that their accounts had been transferred and required “KYC verification” before any payouts could be processed. This tactic underscores the growing concern regarding the misuse of AI in facilitating and concealing fraudulent activities within the digital asset market.
This civil action follows a prior legal entanglement for Fuller. In September of the previous year, a Texas bankruptcy court denied him a discharge of over $12.5 million in debt. This decision came after Fuller reportedly admitted to operating Privvy as a Ponzi scheme and fabricating documents. Fuller subsequently filed for Chapter 7 bankruptcy in October, subsequent to civil lawsuits and asset seizures by a court-appointed receiver. The SEC’s current complaint does not explicitly mention the bankruptcy judgment or Fuller’s prior admission of operating a Ponzi scheme.
The SEC’s Cyber and Emerging Technologies Unit, which was instrumental in this case, has previously pursued similar actions. This unit, established in early 2025, has been active in addressing fraud within the digital asset sector, including a case against the founder of PGI Global for an alleged $198 million scheme involving a purported AI-powered auto-trading platform. The current case also aligns with the SEC’s December action against a group of entities and “AI investment clubs” accused of a $14 million scam, demonstrating a pattern of regulatory scrutiny towards investment schemes that combine AI branding with promises of guaranteed crypto returns.
Fuller faces charges for violating the registration and antifraud provisions of the Securities Act and the Exchange Act. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and a prohibition from participating in future securities offerings.
Potential Regulatory Precedent
This case could set a significant regulatory precedent, particularly concerning the prosecution of schemes that exploit emerging technologies like AI for fraudulent purposes. The SEC’s focus on the fabricated AI components, even when the underlying fraud is a classic Ponzi structure, signals an increasing willingness to scrutinize the technological claims made by investment promoters. Regulators may interpret this as a mandate to develop more robust frameworks for verifying the authenticity and functionality of AI-driven investment strategies. Furthermore, the successful prosecution of such cases could encourage greater diligence from investors and financial platforms in vetting new technologies and investment opportunities. The legal stakes for companies operating in the AI and crypto intersection are elevated, requiring stringent compliance and transparent operational disclosures to avoid regulatory action and safeguard investor trust. This enforcement action reinforces the SEC’s commitment to policing the evolving landscape of digital assets and investment fraud, especially where advanced technology is used as a cloak for illicit activities.
Original article : www.theblock.co