The SEC has charged Richard Heart, the founder of the crypto project Hex, with allegedly conducting unregistered securities offerings that raised more than $1 billion.
The Commission also included three unincorporated entities in its charges: PulseChain, PulseX, and Hex.
Heart and PulseChain are also both facing charges for allegedly using $12 million in the offerings proceeds to buy luxury goods, including a 555-carat black diamond called “The Enigma.”
“Heart began marketing Hex in 2018, claiming it was the first high-yield ‘blockchain certificate of deposit,’ and began promoting Hex tokens as an investment designed to make people ‘rich,'” read the SEC’s complaint.
The SEC is also taking a dim view of a staking feature that Heart claimed would deliver returns of 38%—and alleges that he deliberately attempted to evade securities laws by urging Hex investors to “sacrifice” crypto assets instead of investing them.
“Heart called on investors to buy crypto asset securities in offerings that he failed to register. He then defrauded those investors by spending some of their crypto assets on exorbitant luxury goods,” Eric Werner, director of the Fort Worth regional office said.
The SEC’s lawsuit has been filed in the U.S. District Court for the Eastern District of New York—and claims Heart boasted that Hex “was built to be the highest appreciating asset that has ever existed in the history of man.”
It also contains frequent quotes from his YouTube live streams, including one in 2019 when he declared: “If you want to get rich, [Hex is] built for that.”
And this is where Heart and Hex run headlong into the Howey test, which is used to determine whether an asset is a security, meaning investors have a “reasonable expectation of profits.”
The misappropriation of funds highlighted in the SEC’s lawsuit actually relates to an offering for PulseChain, which was also unregistered and began in July 2021. It’s alleged that Heart—whose real name is Richard Schueler—splashed out $534,916 on a McLaren sports car, $314,125 on a Ferrari Roma, and over $3.4 million on five Rolex watches.
A third unregistered offering, this time for PulseX, also comes into the SEC’s crosshairs, with Heart once again predicting that appreciation of “10,000x in two years is well within the realm of possibility.”
The SEC’s filing notes that massive price depreciation for Hex, PulseCoin, and PulseX.
“At present, PLS and PLSX are practically worthless, and Hex’s value has dropped about 98.4% below its all-time high,” the lawsuit says.
The SEC is now demanding a jury trial—and among its demands, it wants to permanently ban Heart, as well as his projects, from selling crypto asset securities. The commission also wants to recoup ill-gotten gains, secure prejudgment interest, and have civil penalties imposed.
Decrypt has reached out to Hex and Heart for a comment.
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