In June 2023, the US regulator, the Securities and Exchange Commission (SEC), came to blows with the crypto industry with a variety of lawsuits. The hunt to expose bad actors in the field has not slowed down, as three more entities, Hex, PulseChain, and PulseX and their founder, Richard Heart (aka Richard Schueler) have been charged with fraud.
According to the SEC, Hex, PulseChain, and PulseX have been conducting unregistered offerings of crypto asset securities. Over the years, the value of this has built up to more than $1billion in crypto assets from investors. Heart and PulseChain have also been charged with fraud for misappropriating at least $12million of offering proceeds going towards personal purchases.
Some of the purchases included sports cars, watches, and a 555-carat black diamond known as The Enigma. Supposedly, it is the largest black diamond in the world.
Although Heart controls all three entities, they are not incorporated. Hex is an Ethereum-based token; PulseChain is a public blockchain alternative to Ethereum with PulseX acting as the DeFi token swap platform of PulseChain.
The SEC complaint
According to the SEC’s complaint, Heart’s offences began in 2018. He claimed it was the first high-yield “blockchain certification of deposit” and promoted Hex tokens as an investment designed to make people rich. However, between December 2019 and November 2020, over 2.3 million Ethereum (ETH) was collected. This happened as a result of the token allegedly being sold as an unregistered offering. To make matters worse, Heart allegedly ‘recycled’ transactions enabling him to surreptitiously gain control of more tokens.
Heart continued to manipulate the cryptocurrency during 2021 and 2022, according to the SEC. Heart orchestrated two additional unregistered crypto asset security offerings. Each raised hundreds of millions of dollars more in crypto assets. As alleged, those funds were intended to support the development of a supposed crypto asset network, PulseChain, and a claimed crypto asset trading platform, PulseX, through the offerings of their native tokens, respectively, PLS and PLSX.
Calling on investors to “sacrifice” their crypto
Furthermore, Heart also allegedly designed and marketed a so-called “staking” feature for Hex tokens. He claimed these would deliver returns as high as 38 per cent. The complaint further alleges that 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.
The desired outcome
The SEC’s complaint, filed in the US District Court for the Eastern District of New York, alleges that Heart, Hex, PulseChain, and PulseX violated the registration provisions of Section 5 of the Securities Act of 1933.
The complaint also alleges that Heart and PulseChain violated the antifraud provisions of the federal securities laws. As a result, 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,” said Eric Werner, director of the Fort Worth Regional Office. “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. They have assistance from Jamie Haussecker. The investigation is supervised by Sarah S. Mallett and Eric Werner of the Fort Worth Regional Office and by Jorge G. Tenreiro and David Hirsch of the Crypto Assets and Cyber Unit. Lastly, the litigation will be conducted by Matthew J. Gulde and supervised by B. David Fraser.