SEC Opposes Hex Founder Richard Heart’s Bid to Dismiss $1B Securities Lawsuit

Highlights:

• The SEC has rejected Hex founder Richard Heart’s attempt to dismiss the case against him.
• The case involves allegations of $1 billion in unregistered securities offerings.
• The lawsuit asserts that Hex, Pulse X, and PulseChain are considered securities.

The US Securities and Exchange Commission (SEC) has opposed Hex founder Richard Heart’s move to dismiss the lawsuit filed against him. The SEC also asserted that it has jurisdiction to pursue its case. The SEC filing submitted to the US District Court for the Eastern District of New York on July 8 was made public on July 22.

The regulator said:

“In his Motion asking the Court to dismiss all the claims against him, Heart disregards the well-pleaded allegations of the Complaint and the applicable law.” 

#PulseChain News:

Richard Heart case @RichardHeartWin MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT RICHARD HEART's MOTION TO DISMISS pic.twitter.com/gfQeIyXREA

— PulseXTokens.com (@PulsexTokens) August 22, 2024

SEC Accuses Heart of Raising $1 Billion Through Unregistered Securities Offerings

In July 2023, the SEC sued Heart — real name Richard Schueler — for raising over a billion dollars through unregistered offerings of his crypto projects Hex, PulseChain, and PulseX. In its lawsuit, the agency alleged that Heart misused investor funds to finance a lavish lifestyle. This included purchasing designer goods, luxury cars, and a rare black diamond valued at over $4 million.

The SEC’s lawyer said:

“Heart knew that he had not purchased his watches, cars, and large black diamond with actual profits from his enterprises, but with funds from investors.”

Maintaining their stance, the SEC emphasized Heart’s presence at various in-person and virtual events in the US and his marketing efforts to target US investors. The SEC lawyers asserted, “Heart cannot avoid the Court’s jurisdiction by simply relying on the fact that he lives abroad.”

Today we charged Richard Heart (aka Richard Schueler) and three unincorporated entities that 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.

— U.S. Securities and Exchange Commission (@SECGov) July 31, 2023

The regulator also highlighted the HEX token’s staking mechanism. According to the SEC, Heart was advertising potential returns of up to 38% for staking the HEX token. It also claimed that much of the demand for HEX was artificial, with “94%-97% of the ETH deposited” into the wallet “recycled through the so-called crypto asset trading platform.” Regarding the scale of investment, the SEC emphasized that investors had contributed over $354 million to PulseChain. 

Defense’s Argument and Rebuttal

Heart’s lawyers defended him, arguing that he made no explicit promises to investors. They contended that Hex, PulseChain, and Pulse X are neither investment contracts nor securities. They described the three as “decentralized blockchain technologies.” Heart’s lawyers also argued that he lives abroad and is not “alleged to have engaged in any conduct directed at the United States.”

They argued that Hex was designed as a superior alternative to Bitcoin, intended to “outperform” it. They also noted that similar to Bitcoin — which the SEC has acknowledged is not a security — Hex is not alleged to have any functionalities beyond those incorporated in its software code. Moreover, cryptocurrency influencer Ben Armstrong, known as BitBoy, defended HEX in a video in January, asserting that the project is not a scam. Armstrong highlighted that despite the legal issues faced by HEX’s founder, the staking model has consistently rewarded its users.

According to the latest CoinMarketCap data, PulseChain (PLS) is down 85% from its all-time high in May 2023. Similarly, HEX has fallen over 82% from its peak. The ongoing lawsuit alleging that these tokens are securities has also impacted their value.