SEC pushes back against Hex founder Richard Heart's efforts to dismiss case

Quick Take

  • The SEC argued that Hex founder Richard Heart’s motion to dismiss should be denied in a filing posted on Thursday.
  • Meanwhile, lawyers for Heart say the SEC’s case against him should be dismissed in part because securities are not involved and say Heart lives abroad. 

Responding to Hex founder Richard Heart's attempts to dismiss the lawsuit filed against him, the U.S. Securities and Exchange Commission asserted it does have jurisdiction to pursue its case.

The regulator argued that Heart's motion to dismiss should be denied. The agency's filing made to the U.S. District Court for the Eastern District of New York is dated from July 8, but only became public on Thursday.  

"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," the SEC lawyers said in their filing. 

The SEC sued Richard Schueler, the Hex and PulseChain founder best known as Richard Heart, in 2023 and accused him of raising over $1 billion in unregistered securities offerings and using the proceeds to buy luxury cars, designer clothes and a rare black diamond dubbed The Enigma valued over $4 million. 

The SEC said Hex has a staking component that allows investors to contribute Hex tokens that are then locked up to receive more Hex tokens at a later date. Heart touted that investors could receive a return of 38% for staking their Hex tokens, the SEC said in the complaint. It added that much of the demand for Hex was artificial, with "94%-97% of the ETH deposited” into that wallet “recycled through the so-called crypto asset trading platform.”

Heart's lawyers have pushed back against the allegations in their motion to dismiss the SEC's lawsuit, arguing Heart did not commit fraud because he didn't promise investors anything. 

"The SEC’s fraud claims fail because the Complaint alleges no deceptive conduct," they said. "The SEC asserts that 'investors invested more than $354 million of crypto assets in PulseChain' and that Mr. Heart allegedly used about $8.9 million of PulseChain assets to fund purchases of luxury goods. But the Complaint is remarkably silent as to what Mr. Heart stated would be done with the assets, owing to the fact that he promised nothing." 

However, in the SEC's latest filing, its lawyers argue that Heart defrauded PulseChain investors by using funds for his own "personal luxury purposes." 

"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," the SEC's lawyers said. 

Heart's lawyers also argued that Heart lives abroad and is not "alleged to have engaged in any conduct directed at the United States." 

The SEC pushed back on that as well in the July filing saying that Heart "cannot avoid the Court’s jurisdiction by simply relying on the fact that he lives abroad." The agency's lawyers pointed to an in-person appearance in Miami as well as virtual appearances in Las Vegas and "extensive marketing" to potential U.S. investors to prove their point. 

Heart's lawyers asserted that Hex, PulseChain and Pulse X are not investment contracts and not securities. The trio are "decentralized blockchain technologies," the lawyers said. 

"Hex was built as a superior alternative to Bitcoin designed to 'outperform' it," the lawyers said. "Like Bitcoin — which the SEC has conceded is not a security — Hex is not alleged to have any actual or intended functionalities other than the mechanics built into its software code. The Complaint does not allege that individuals were meant to do anything with their Hex tokens other than hold them in their digital 'wallets' on the Ethereum network and use the aforementioned software functions." 

Again, the SEC said that Heart sold Hex, Pulse and Pulse X as investment contracts and so are securities. 

The next hearing is scheduled for Oct. 24 


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About Author

Sarah is a reporter at The Block covering policy, regulation and legal happenings. Before, Sarah was a reporter with CQ Legal writing about securities regulation, which is where she first started reporting on crypto. Sarah has also written for The Bond Buyer and American Banker, among other finance-related publications. She graduated from the University of Missouri and earned a degree in print and digital journalism. Sarah is based in Washington D.C., and is an avid coffee lover. You can follow her on Twitter @ForTheWynn.

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