The U.S. Securities and Exchange Commission (SEC) has filed charges against Nathan Fuller, the founder of Privvy Investments LLC, for orchestrating a cryptocurrency scheme that defrauded approximately 150 investors out of $12.3 million. Fuller allegedly misrepresented the nature of his investment operations, claiming the use of proprietary Artificial Intelligence (AI) bots for high-frequency crypto arbitrage, a claim the SEC asserts was false.
Key Takeaways
- Nathan Fuller, founder of Privvy Investments LLC, is accused by the SEC of defrauding investors of $12.3 million through a fraudulent cryptocurrency scheme.
- Investors were allegedly promised substantial returns based on the purported use of AI-powered trading bots for crypto arbitrage.
- The SEC claims that minimal funds were actually invested in cryptocurrency, with the majority of the raised capital allegedly misappropriated by Fuller for personal expenses and distributed to earlier investors in a Ponzi-like manner.
- Fuller had previously admitted to operating Privvy as a Ponzi scheme in bankruptcy proceedings, which the SEC’s current civil complaint does not explicitly reference.
- The case highlights a recurring pattern of fraudulent schemes leveraging AI branding to attract investors in the cryptocurrency space.
Fuller, who also operated under the business name Gateway Digital Investments, is alleged to have solicited funds from investors across multiple states and two foreign countries between October 2022 and mid-2024. Investors were reportedly enticed by promises of returns ranging from 40% to 50% within short periods, or even guaranteed profits exceeding 100% in as little as 21 days. These assurances were predicated on the supposed efficacy of AI-driven bots designed to exploit minute price discrepancies in cryptocurrency markets.
According to the SEC’s complaint, the advertised AI bots were largely non-functional, lacked any AI capabilities or risk management features, and did not generate profits. The agency asserts that only about 3% of the total funds raised, approximately $380,000, was actually deployed into cryptocurrency trading, yielding no returns. Instead, Fuller is accused of diverting at least $6.2 million for personal expenditures, including a house, gambling, and luxury items, while approximately $5.5 million was allegedly used to make payments to earlier investors, characteristic of a Ponzi scheme.
The SEC further alleges that Fuller engaged in deceptive practices to placate investor concerns. This included falsely claiming to possess a Texas money-transmitter license, a surety bond, FDIC insurance for investor funds, and a professional-liability policy. To support these false claims, Fuller is said to have fabricated an insurer and manipulated an existing insurance certificate to suggest substantial coverage that was, in fact, explicitly excluded. In an effort to stall investor withdrawals in June 2024, Fuller reportedly utilized AI tools, specifically ChatGPT, to draft a fraudulent communication from a fake entity, Blockchain Audit Solutions, informing investors of account transfers and requiring further “KYC verification” before payouts.
This civil action follows Fuller’s admission in bankruptcy court last September, where he acknowledged operating Privvy as a Ponzi scheme and fabricating documents. Despite this, the SEC’s current complaint does not reference the prior bankruptcy judgment or his admission of guilt in those proceedings. Fuller filed for Chapter 7 bankruptcy in October 2024, following investor lawsuits and asset seizure by a receiver.
The SEC’s Cyber and Emerging Technologies Unit, established to address complex cases involving digital assets and new technologies, was involved in this investigation. This unit has previously pursued actions against schemes that combined AI branding with cryptocurrency promises, such as the case against Ramil Palafox of PGI Global and actions against fake crypto platforms and “AI investment clubs” accused of substantial fraud.
The SEC is seeking permanent injunctions against Fuller, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and a prohibition from participating in future securities offerings. The charges include violations of the registration and antifraud provisions of the Securities Act and the Exchange Act.
Potential Regulatory Precedent
This case, involving a scheme that heavily promoted AI capabilities for investment returns, underscores a developing area of regulatory concern. As the SEC’s Cyber and Emerging Technologies Unit actively pursues cases that blend AI narratives with cryptocurrency fraud, this enforcement action may contribute to establishing clearer legal boundaries and heightened scrutiny for firms making claims about AI-driven trading. The emphasis on the falsity of AI-generated returns and the subsequent use of AI in obfuscation tactics could inform future regulatory guidance or enforcement priorities regarding the responsible and truthful representation of technology in financial services. This situation could set a precedent for how regulators approach the intersection of AI and digital asset investments, particularly concerning disclosures, performance claims, and the potential for technology to be used in fraudulent activities. It reinforces the need for robust compliance frameworks that can adapt to rapidly evolving technological advancements and their application in the financial markets.
Based on materials from : www.theblock.co