Federal regulators have charged Texas resident Nathan Fuller with orchestrating a crypto fraud scheme that successfully raised $12.3 million from approximately 150 investors. Fuller allegedly lured victims by falsely claiming his proprietary, AI-powered trading bots could generate guaranteed, astronomical returns.
The Anatomy of the Fake AI Bot Scheme
Operating through Privvy Investments, LLC and under the assumed name Gateway Digital Investments between October 2022 and mid-2024, Fuller targeted investors with promises of quick wealth. He pitched returns of 40% to 50% within 30 to 45 days, with some promotional materials guaranteeing profits exceeding 100% in just 21 days.
- Total Funds Raised: $12,300,000
- Total Investors Defrauded: 150
- Promised Returns: up to 100% in 21 days
- Misappropriated for Personal Use: $6,200,000
To establish credibility, Fuller told investors their capital was secured by a surety bond, backed by professional liability insurance, and fully insured by the Federal Deposit Insurance Corporation (FDIC). According to the SEC complaint filed in the US District Court for the Southern District of Texas, these claims were entirely fabricated.
Phantom Bots and Classic Ponzi Mechanics
At the core of the pitch were proprietary AI-based trading bots that Fuller claimed would execute high-frequency arbitrage trading across various digital asset platforms. In reality, the bots did not function as represented, and no actual trading took place.
“Bad actors are increasingly wrapping age-old Ponzi schemes in the trendy vocabulary of artificial intelligence to exploit retail FOMO. When a platform promises guaranteed double-digit returns in weeks, the technology behind it is almost always a fiction.”
Of the $12.3 million raised, Fuller allegedly used $5.5 million to pay Ponzi-like returns to earlier investors to keep the illusion alive. He pocketed at least $6.2 million to fund his personal lifestyle, using fabricated account statements and fake correspondence from fictitious entities to stall worried clients.
The SEC is now seeking permanent injunctions, civil penalties, and the disgorgement of all ill-gotten gains.
The Rise of ‘AI-Washing’ in Crypto
This enforcement action highlights a growing trend of “AI-washing” in the Web3 space, where bad actors exploit the public’s lack of technical understanding of artificial intelligence to market fraudulent investment products. Regulatory bodies have repeatedly warned that genuine AI-driven trading tools cannot guarantee risk-free returns.
Frequently Asked Questions (FAQ)
- What is AI-washing in crypto? It is the practice of falsely claiming a product or service uses advanced artificial intelligence to make it seem more sophisticated and profitable than it actually is.
- Are crypto trading bots FDIC-insured? No. The FDIC only insures deposits at participating banks. It does not cover private crypto investments, digital assets, or trading bot platforms.
- What penalties is the SEC seeking? The SEC is pursuing permanent injunctions to stop Fuller from operating, disgorgement of the stolen funds with interest, and significant financial penalties.
