SEC Back on Legal Blitz, Charges Richard Heart with $1B Unregistered Securities Offering

It seems like the setback from the XRP ruling could not stop the United States (US) Securities and Exchange Commission (SEC) from going out for blood again, much akin to a serial killer. Keeping mum about whether the SEC will appeal the XRP ruling, SEC Chair Gary Gensler is going on to target everything else, including artificial intelligence (AI).

The legal blitz against crypto looks like it is back in full force, with the SEC taking a decisive stance against internet marketer Richard Schueler, widely recognised as Richard Heart in the online world. The SEC's lawsuit, filed yesterday, brings to light serious allegations pertaining to Richard’s involvement with projects such as Hex, PulseChain, and PulseX.

According to the lawsuit, he is accused of orchestrating a series of unregistered securities offerings dating back to 2019, collectively raising an astonishing $1 billion in funds. However, the gravity of the situation does not end there, as the SEC further contends that he engaged in fraudulent practices, misappropriating investor funds for personal gain.

Adding to the complexities of the legal battle, Richard and PulseChain now find themselves confronted with additional charges relating to the purported misuse of offering proceeds. Specifically, the allegations claim that a staggering $12 million was utilised for the acquisition of lavish luxury goods, including a jaw-dropping 555-carat black diamond intriguingly named "The Enigma."

Another particular aspect caught the SEC’s attention: the contentious staking feature touted by Richard, promising impressive returns of 38%. However, the regulator takes a dim view of this claim, asserting that it may have been an intentional manoeuvre to circumvent securities laws. He allegedly encouraged Hex investors to participate in a peculiar act of "sacrificing" crypto assets instead of traditional investments.

Director of the Fort Worth regional office pointed out that, “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.”

It was further emphasised in the lawsuit that, “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…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 SEC's legal action centres around Richard’s bold assertions about Hex, the cryptocurrency he championed, as the ultimate appreciating asset in history. On various occasions, including a 2019 YouTube live stream, he proclaimed Hex's potential for wealth creation. despite these references, the lawsuit reveals a significant revelation: his admission that the triumph of his ventures hinged entirely on his individual efforts.

The SEC complaint read that, “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.”

However, it appears that these declarations have led to a clash with the Howey test, a crucial measure for determining whether an asset qualifies as a security. The test hinges on whether investors reasonably expect profits from their investment.

Interestingly, the SEC's lawsuit goes beyond Hex's claims and delves into the misallocation of funds related to an offering for PulseChain. Notably, this offering lacked proper registration and commenced in July 2021. The SEC contends that Richard spent lavishly, including an astonishing $534,916 on a McLaren sports car, $314,125 on a Ferrari Roma, and a staggering sum exceeding $3.4 million on five Rolex watches.

And within the SEC's scrutiny lies yet another unregistered offering, this one pertaining to PulseX, a digital asset that Richard confidently predicts could experience a staggering "10,000x appreciation within two years." The lawsuit went on to state, “At present, PLS and PLSX are practically worthless, and Hex’s value has dropped about 98.4% below its all-time high.”

Crypto Twitter Community Mostly Against SEC
On Twitter, the crypto community rallied against SEC and mocked the regulator with memes.

SEC’s Charges Not a Surprise Considering its Long-standing Enforcement Actions

The SEC has escalated its actions by requesting a jury trial. In its demands, the commission is seeking a permanent ban on Richard and his associated projects from engaging in the sale of crypto asset securities. Moreover, the SEC aims to recover ill-gotten gains, secure prejudgment interest, and impose civil penalties.

The SEC's charges against Richard Heart are hardly a surprise for those immersed in the crypto ecosystem, as we have witnessed a consistent stream of enforcement actions throughout the year. While HEX and the PulseChain ecosystems may not be as prominent as some Web3 projects previously targeted by regulators, the lawsuit's impact could still reverberate widely.

It also places HEX among the ranks of tokens like Cardano (ADA), Solana (SOL), and Filecoin (FIL), all now deemed securities by the US SEC. The ramifications of this classification extend beyond individual projects, prompting us to explore the broader implications for the crypto market.

Amidst these developments, we must reflect on the evolving relationship between regulators, investors, and the ever-expanding crypto market. Striking a balance between fostering innovation and safeguarding investors is paramount for the long-term growth and stability of this rapidly evolving ecosystem. The outcome of this lawsuit will undoubtedly serve as a focal point for ongoing discussions about the future of crypto regulations and its implications for the industry at large.

And who else is next on the SEC’s radar?