SEC says Texas man used fake AI crypto bots and phony statements in $12.3 million investor scheme

A Texas resident is being sued by the Securities and Exchange Commission over a crypto venture that regulators say brought in about $12.3 million from nearly 150 investors by claiming proprietary artificial intelligence bots were doing the trading, the agency announced.

The agency says those bots did not work as promised and alleges that millions of dollars were instead funneled to personal spending and Ponzi-like payouts.

What happened?

In a case filed May 28 in federal court in the Southern District of Texas, the SEC accused Cypress resident Nathan Fuller of running a crypto asset fraud scheme from at least October 2022 through mid-2024, as detailed in the release.

The complaint says Fuller sold joint-venture interests through Privvy Investments, LLC, while also using the names Privvy Investments and Gateway Digital Investments, and told investors their money would be used by supposed AI software to make rapid crypto arbitrage trades.

Regulators say he pitched eye-catching returns, allegedly telling some investors they could make over 40-50% in 30 to 45 days and calling gains topping 100% in as little as 21 days "guaranteed."

The SEC also says Fuller claimed investor money was protected by a surety bond, FDIC coverage, and liability insurance. Instead, the complaint alleges he spent at least $6.2 million on personal expenses, used about $5.5 million for Ponzi-like payments, and calmed investors with bogus account statements and fabricated correspondence from fake entities.

The investigation was handled by personnel in the SEC's Fort Worth Regional Office and received assistance from the Division of Enforcement's Cyber and Emerging Technologies Unit.

Why does it matter?

Parts of the crypto industry have drawn criticism over volatility, fraud risk, and, in some cases, high energy use tied to mining operations.

In this case, the SEC indicates that Fuller might have used the newness of the industry to capitalize on investors, who would believe his claims. He also allegedly leveraged AI as another piece of tech that he could shape to paint a picture about a foolproof investment scheme.

This is a clear misuse of both AI and crypto. It's worth pointing out that some crypto projects promote lower-energy systems or aim to help finance clean energy development. There are also efforts to increase transparency in crypto and reduce its energy use.

Alleged schemes like this one can degrade trust in the industry and require a heavy amount of resources in the meantime.

What's being done?

The SEC's lawsuit accuses Fuller of violating registration and antifraud provisions of federal securities laws.

Accordingly, the agency is seeking permanent injunctions, the surrender of allegedly unlawful profits plus prejudgment interest, and civil penalties, according to the release. 

The SEC's complaint is still just that, but if it succeeds, it will aim to help out the 150 investors and hold Fuller to account.

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