SEC Charges $12.3M AI Crypto Fraud: How to Spot the Pattern

The Securities and Exchange Commission has charged Nathan Fuller, a resident of Cypress, Texas, with running a crypto fraud scheme that raised $12.3 million from roughly 150 investors. The pitch was built around AI-powered trading bots that Fuller claimed would generate guaranteed returns through high-frequency arbitrage. The SEC alleges the technology did not work as advertised.

Fuller operated through Privvy Investments, LLC and under the assumed business name Gateway Digital Investments between at least October 2022 and mid-2024, according to the complaint filed in the US District Court for the Southern District of Texas.

The AI Pitch: 100% Returns in 21 Days

Fuller promised investors returns of 40% to 50% within 30 to 45 days. Some investors were allegedly told they could earn guaranteed profits of more than 100% in as little as 21 days. The alleged strategy involved proprietary AI trading bots conducting high-frequency arbitrage across crypto platforms.

The SEC said the technology claims were false. The complaint reads:

"Fuller's bots did not function as represented."

The Insurance Cover That Did Not Exist

Fuller told investors their funds were secured by a surety bond, insured by the Federal Deposit Insurance Corporation (FDIC), and protected by a professional liability insurance policy. The SEC alleges those claims were not true.

That structure is important because it shows how AI branding and insurance language can make a high-risk crypto pitch look safer than it is. Guaranteed returns, short payout windows, and claims of institutional protection are common warning signs in investment fraud, especially when paired with complex technology that most retail investors cannot verify.

The promised trading strategy gave the scheme a technical cover. High-frequency arbitrage across crypto venues can sound plausible because crypto markets trade around the clock and often show price differences across platforms. In the SEC's case, the allegation is that the bots did not operate as described and that investor money was not being used in the way Fuller represented.

Where the Money Went: $6.2 Million in Personal Expenses

Of the $12.3 million raised, Fuller allegedly misappropriated at least $6.2 million for personal expenses. The SEC also alleged that about $5.5 million was used to make Ponzi-like payments to earlier investors.

Those figures suggest that most of the money raised was not tied to the trading activity investors were promised. Instead, the complaint describes a structure in which new investor funds helped sustain confidence among earlier participants while Fuller allegedly used a large portion of the proceeds for himself.

Fabricated Statements and Fictitious Entities

To keep the scheme running, Fuller allegedly sent investors fake account statements and fabricated correspondence from fictitious entities. That type of documentation can delay suspicion because investors may believe their accounts are growing even when there is no real underlying trading activity supporting the reported returns.

Three Red Flags from the SEC's Complaint

The Fuller case offers a concrete checklist for evaluating any crypto investment claiming to use AI or automated trading systems. Three structural factors made this pitch more dangerous than a standard crypto scam:

• Technical opacity: AI trading bots are a black box for most retail investors. Claims about high-frequency trading or arbitrage are hard to verify without access to the code or trade logs.
• False institutional cover: References to FDIC insurance, surety bonds, and professional liability policies create a false sense of safety. No insurance product covers crypto trading losses or fraud.
• Compound incentives: Ponzi-like payments to early investors generate word-of-mouth referrals and delay reporting. Investors who see their account statements growing have little reason to question the model.

The SEC's complaint does not name any specific crypto exchange or platform where the alleged arbitrage trades were supposed to occur. That lack of specificity is itself a common pattern in AI-branded fraud: the technology is described in general terms that cannot be independently tested.

Warning Signs Every Investor Should Check

The following markers appeared in this case and in similar SEC actions:

• Guaranteed returns above market benchmarks
• Extremely short payout windows (21 to 45 days)
• Claims of FDIC or surety bond coverage for crypto trading
• Proprietary technology that cannot be audited or tested
• Payments to earlier investors from new investor funds
• Account statements from third parties that cannot be verified

SEC's Broader Crypto Enforcement Record

The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. The case adds to a growing enforcement record around crypto schemes that use AI claims to attract retail investors.

Parallel Cases with AI Branding

The agency has brought other cases involving crypto platforms and investment clubs that used AI branding to lure investors. In one separate $14 million scheme, fraudsters allegedly posed as financial professionals in WhatsApp groups and promised profits from AI-generated trading tips.

The SEC also charged crypto executive Donald Basile and 2 companies he controlled last month with raising roughly $16 million from hundreds of investors through false claims tied to a crypto token called Bitcoin Latinum.

Policy Context: Enforcement vs. Legislation

The SEC has acknowledged that some of its past crypto enforcement work produced limited investor benefit. In its 2025 enforcement results, the regulator said that since fiscal year 2022, it brought 95 actions and imposed $2.3 billion in penalties for book-and-record violations that "identified no direct investor harm" and "produced no investor benefit or protection."

That admission gives cases like Fuller's a different policy role. Fraud actions tied to alleged misappropriation, fake statements, and false guarantees are easier for regulators to defend than broader disputes over whether a crypto product fits securities law.

The case comes amid a broader policy debate about crypto regulation in Washington. The CLARITY Act, a proposed bill to clarify crypto jurisdiction, has stalled. Senator Cynthia Lummis has warned it may not advance until 2030. That legislative vacuum means enforcement actions like this one will continue to shape the regulatory environment. For more context, see Lummis Warns: CLARITY Act Stalls Until 2030.

AI and Crypto: Why Verification Matters

The overlap between AI and crypto is giving fraudsters a new marketing tool. AI trading bots are difficult for retail investors to evaluate, while crypto markets offer a familiar story around volatility, arbitrage, and rapid gains. Together, they can make unrealistic return promises sound more credible.

For contrast, consider regulated industries like utilities. Southern Company (SO), with an Alpha Score of 43/100 and a Mixed label on AlphaScala, operates in a sector that requires detailed disclosures about operations, risks, and financial condition. See the SO stock page for reference. The crypto market, by contrast, still operates with wide gaps in what investors can independently verify.

What Would Confirm or Weaken the SEC's Case

The SEC has not yet scheduled a trial date. Fuller has not filed a response to the complaint as of this writing. Two developments would shift the risk profile:

• Confirming the case: If additional victims come forward or if the US Department of Justice pursues parallel criminal charges (common in fraud cases of this size), the SEC's allegations would carry more weight.
• Weakening the case: If Fuller can produce evidence that the bots functioned at some level or that the insurance claims were based on legitimate contracts (however unlikely), the SEC's case could settle on reduced terms.

For now, the Fuller case is a clear reminder: AI branding does not reduce investment risk. It often increases it by making unrealistic claims harder to challenge. The $12.3 million raised from 150 investors shows how quickly a well-packaged crypto-AI story can drain capital from retail accounts before any regulator intervenes.