The U.S. Securities and Exchange Commission (SEC) recently filed a lawsuit against Nathan Fuller, founder of Privvy Investments and Gateway Digital Investments, accusing him of raising approximately $12.3 million from investors between 2022 and 2024 by selling AI trading bots and automated arbitrage strategies.

Only a small amount of funds entered the transaction.

Regulatory filings state that the business, advertised as automated cryptocurrency trading, had significantly different fund flows compared to its advertised claims. The SEC points out that only about 3% of the funds actually entered into trading activities, with the majority of the remainder not used for alleged arbitrage.

According to SEC disclosures, approximately $6.2 million was used for personal expenses, including housing, vehicles, travel, and gambling. Another approximately $5.5 million was paid to early investors as so-called "returns."

SEC points to Ponzi scheme

This means that the projects in question do not rely on market transactions for profit, but rather on new investment to maintain repayments. As new funds continue to flow in, the entire structure becomes increasingly dependent on attracting new investors rather than on sustainable investment returns.

Based on the SEC's allegations, this model exhibits typical characteristics of a Ponzi scheme: using funds from later investors to pay earlier investors, thereby creating the appearance of project profitability and continuing to expand the scale of fundraising.

AI-related scams have increased significantly.

A recent report from blockchain security firm TRM Labs shows that AI-driven scams have increased by approximately 500% in the past year. With the proliferation of large language models, deepfakes, and voice cloning tools, constructing seemingly credible investment stories has become cheaper and easier to scale.

When AI is combined with the crypto market, the risks are amplified. On the one hand, both fields easily attract funds with a high risk appetite; on the other hand, the technical barriers are high, and ordinary investors often find it difficult to independently verify whether project promotions match actual transaction data.

This case demonstrates that investment narratives surrounding AI are becoming a new form of packaging for crypto fraud, and may also prompt U.S. regulators to continue to strengthen scrutiny of related fundraising and promotional activities.