SEC Charges Hex Founder Richard Heart with Misappropriating Millions of Dollars of Investor Funds from Unregistered Crypto Asset Securities Offerings that Raised more than $1 Billion

The Securities and Exchange Commission (SEC) has taken legal action against Richard Heart, also known as Richard Schueler, along with three unincorporated entities under his control: Hex, PulseChain, and PulseX. The charges stem from their involvement in conducting unregistered offerings of crypto asset securities, which managed to accumulate over $1 billion in crypto assets from investors. The SEC has additionally accused Richard Heart and PulseChain of fraudulent activities, including misappropriating around $12 million from the offerings to indulge in luxury purchases such as high-end cars, timepieces, and even a rare 555-carat black diamond called ‘The Enigma,’ reportedly the largest of its kind globally.

The SEC’s complaint outlines that Richard Heart commenced the promotion of Hex in 2018, marketing it as the inaugural high-yield “blockchain certificate of deposit.” He positioned Hex tokens as an investment opportunity promising substantial wealth. Allegedly, from December 2019 to November 2020, Richard Heart and Hex undertook the unregistered offering and sale of Hex tokens. This endeavor garnered more than 2.3 million Ethereum (ETH). The complaint contends that “recycling” transactions were employed during this period, allowing Richard Heart to covertly gain control over additional Hex tokens. The SEC’s filing further claims that between July 2021 and March 2022, Richard Heart orchestrated two more unregistered offerings of crypto asset securities, yielding hundreds of millions of dollars more in crypto assets. These funds were supposedly directed toward the development of PulseChain, a purported crypto asset network, and PulseX, an alleged crypto asset trading platform. The respective native tokens, PLS and PLSX, were offered in these ventures.

Richard Heart also introduced a concept called “staking” for Hex tokens, touting potential returns as high as 38 percent. The SEC’s complaint asserts that Richard Heart sought to circumvent securities regulations by urging investors to “sacrifice” their crypto assets in return for PLS and PLSX tokens, rather than using the term “invest.”

Eric Werner, Director of the Fort Worth Regional Office, stated, “Heart encouraged investors to participate in offerings for crypto asset securities without adhering to proper registration protocols. Subsequently, he exploited these investors by diverting some of their crypto assets towards extravagant luxury acquisitions. This action aims to safeguard the interests of the investing public and to hold Richard Heart accountable for his actions.”

The SEC’s complaint, which has been filed in the U.S. District Court for the Eastern District of New York, alleges multiple violations. Richard Heart, Hex, PulseChain, and PulseX are accused of violating Section 5 of the Securities Act of 1933, which pertains to registration provisions. Additionally, Richard Heart and PulseChain are implicated in violating the antifraud provisions of federal securities laws. The SEC’s complaint seeks a range of remedies, including injunctive relief, disgorgement of unlawfully acquired gains with prejudgment interest, penalties, and equitable relief.