The Securities and Exchange Commission (SEC) charged Richard Heart (aka Richard Schueler) and three unincorporated entities he controls - Hex, PulseChain, and PulseX - with conducting unregistered offerings of crypto asset securities that raised more than $1 billion in crypto assets from investors.
“Heart continually touted these investments as a pathway to grandiose wealth for investors, claiming that Hex, for example, ‘was built to be the highest appreciating asset that has ever existed in the history of man,’” the SEC stated in a complaint filed in U.S. District Court for the Eastern District of New York.
The SEC also charged Heart and PulseChain with fraud for misappropriating at least $12 million of crypto offering proceeds to purchase sports cars, watches, and a 555-carat black diamond known as The Enigma, reportedly the largest black diamond in the world.
“Although Heart claimed these investments were for the vague purpose of supporting free speech, he did not disclose that he used millions of dollars of PulseChain investor funds to buy luxury goods for himself,” the complaint stated.
According to the complaint, Heart began marketing Hex in 2018 as the first high-yield “blockchain certificate of deposit,” and promoting Hex tokens as an investment designed to make people “rich.” From at least December 2019 through November 2020, Heart and Hex are accused of offering and selling Hex tokens in an unregistered offering, collecting more than 2.3 million Ethereum.
The complaint also alleged that, between at least July 2021 and March 2022, Heart orchestrated two more unregistered crypto asset security offerings. Each raised hundreds of millions of dollars in crypto assets purported to support development of a crypto asset network, PulseChain, and a crypto asset trading platform, PulseX, through offerings of their native tokens. Heart also allegedly designed and marketed a so-called “staking” feature for Hex tokens, which he claimed would deliver returns as high as 38 percent.
The complaint further alleged Heart attempted to evade securities laws by calling on investors to “sacrifice” (instead of “invest”) their crypto assets in exchange for PLS and PLSX tokens.
“Investors invested more than $354 million by depositing their crypto assets to the PulseChain public wallet address in exchange for the promise of future delivery of PLS tokens. In connection with PulseX, investors invested more than $676 million by depositing their crypto assets to the PulseX public wallet address in exchange for the promise of future delivery of PLSX tokens,” the SEC said in the complaint.
The SEC’s complaint alleged Heart, Hex, PulseChain, and PulseX violated the registration provisions of Section 5 of the Securities Act of 1933 and Heart and PulseChain violated the antifraud provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, penalties, and other equitable relief.
“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 SEC Fort Worth Regional Office, said. “This action seeks to protect the investing public and hold Heart accountable for his actions.”
The SEC’s continuing investigation is being conducted by Jaime Marinaro and Derek Kleinmann of the Fort Worth Regional Office, with assistance from Jamie Haussecker. The investigation is supervised by Sarah Mallett and Eric Werner of the Fort Worth Regional Office and by Jorge Tenreiro and David Hirsch of the Crypto Assets and Cyber Unit. The litigation will be conducted by Matthew Gulde and supervised by B. David Fraser.
This charge was brought shortly after the SEC received a mixed holding in SEC v. Ripple Labs, Inc., where a federal district court ruled a company did not violate Section 5 when selling crypto programmatically and on third-party exchanges.