The U.S. Securities and Exchange Commission (SEC) filed a lawsuit on July 31, 2023, against Richard Schueler, also known as Richard Heart, and his three cryptocurrency projects—Hex, Pulsechain, and Pulsex—accusing them of raising more than $1 billion through unregistered securities offerings and defrauding investors.
Unregistered Securities Allegations
According to the SEC complaint, beginning in December 2019, Heart offered and sold Hex tokens, marketing them as a "high-yield blockchain certificate of deposit" and promising investors incentives and bonuses. The SEC alleges that between December 2019 and November 2020, Heart accepted more than $678 million worth of ether from investors in exchange for Hex tokens. These transactions are deemed unregistered securities offerings, violating federal securities laws.
The complaint further states that between July 2021 and April 2022, Heart conducted unregistered offerings for Pulsechain and Pulsex. He urged investors to deposit crypto assets into public wallet addresses in exchange for tokens to be delivered in the future. According to the SEC, more than $354 million was invested in Pulsechain and more than $676 million in Pulsex in this manner. The SEC argues that all three offerings—Hex, Pulsechain, and Pulsex—were securities offerings that required registration but were not properly filed.
Fraud and Misappropriation Charges
In addition to the registration violations, the SEC alleges that Heart and Pulsechain defrauded investors by misappropriating at least $12.1 million of investor funds for Heart’s personal luxury purchases. Instead of using the money to develop the Pulsechain network as promised, Heart allegedly spent it on a 555-carat diamond, luxury watches, and high-end cars. The SEC states: "Through their actions, defendants Heart and Pulsechain violated, and unless enjoined will continue to violate, the antifraud provisions of the federal securities laws."
The SEC is seeking a permanent injunction to prevent Heart and his companies from engaging in future securities law violations, along with disgorgement of ill-gotten gains and civil penalties. The case will be tried in federal court.
Background and Implications
Richard Heart has been a controversial figure in the crypto space. Hex, launched in 2019, has long been criticized as a potential Ponzi scheme due to its high-yield staking model. Pulsechain and Pulsex were launched as a decentralized exchange and blockchain network, respectively. The SEC’s lawsuit represents one of the most aggressive enforcement actions against a high-profile crypto entrepreneur, potentially setting a precedent for how U.S. regulators treat unregistered token offerings.
Neither Richard Heart nor representatives of Hex, Pulsechain, or Pulsex have commented on the lawsuit as of press time. Industry observers note that this case could have significant implications for the broader crypto market, especially regarding the classification of tokens as securities.