SEC Lawsuit Targets Richard Heart’s Crypto Projects Hex, PulseChain, and PulseX for Fraud and Securities Violations
SEC Files Lawsuit Against Richard Heart and His Crypto Projects for Fraud and Securities Violations
The U.S. Securities and Exchange Commission (SEC) has taken legal action against Richard Schueler, also known as Richard Heart, and three of his cryptocurrency projects, namely Hex, PulseChain, and PulseX. The lawsuit alleges that these projects conducted unregistered offerings of “crypto asset securities” and raised more than $1 billion in cryptocurrency from investors.
Heart and PulseChain are also accused of committing fraud by misappropriating at least $12 million from the offering proceeds to purchase luxury items such as sports cars, watches, and a 555-carat black diamond known as “The Enigma,” which is reported to be the largest black diamond in the world.
PulseChain, which launched in May, is accompanied by PulseX, an exchange operating on its blockchain that facilitates the exchange of various tokens within its network.
The SEC’s concerns are further exacerbated by the connection of these projects to Hex, which has faced criticism due to its dubious claims. Hex, which has been active since 2019, advertised itself as the first “blockchain certificate of deposit,” with promises of high annual percentage yields (APYs) and tokens purportedly worth “trillions of dollars” more than gold, credit card companies, and cash. Despite claims of legitimacy, Hex has been widely regarded by many market participants as a scam.
The SEC alleges that Heart introduced a “staking” feature for HEX tokens, promising yields as high as 38%. Additionally, the complaint asserts that Heart attempted to circumvent securities laws by encouraging investors to “sacrifice” their crypto assets in exchange for PLS and PLSX tokens, rather than framing it as an investment.
The legal action centers on unregistered offerings of HEX tokens between December 2019 and November 2020, which raised over 2.3 million ether (worth approximately $4,271,468,000 at present value). Moreover, between July 2021 and March 2022, Heart created two additional unregistered crypto tokens, PLS and PLSX, which collected hundreds of millions of cryptocurrency to support PulseChain and PulseX, respectively.
Following the news of the SEC’s lawsuit, the prices of HEX, PLS, and PLSX tokens experienced significant declines of 24%, 25%, and 42%, respectively.
In recent times, the SEC has intensified its efforts to crack down on the cryptocurrency industry, pursuing companies of all sizes for alleged securities violations, fraud, and other illicit activities. As the SEC continues its scrutiny of the crypto space, it is likely that more firms may face similar lawsuits in the future.
However, there is still disagreement within the industry and among government regulatory bodies about whether crypto assets should be treated as securities.
Earlier this month, a federal court ruled that XRP, used for the Ripple blockchain, is not a security when sold to the general public but may be considered one for institutional sales. The SEC had previously alleged that Ripple and two of its executives raised $1.3 billion through an unregistered and ongoing digital asset securities offering.
Stu Alderoty, the chief legal officer of Ripple Labs, believes that the court’s ruling could potentially provide clarity for other pending lawsuits and highlights the need to establish the best regulatory framework to safeguard the integrity of the market.