The U.S. Securities and Exchange Commission (SEC) launched a lawsuit against Richard Schueler today, best known online as Richard Heart, and his blockchain crypto projects Hex, PulseChain, and PulseX. The suit alleges that Heart defrauded investors while raising over $1 billion across three unregistered securities offerings since 2019.
Overblown Promises and Personal Gain
The suit details that Heart regularly presented his projects as avenues to substantial wealth, claiming that Hex was “built to be the highest appreciating asset that has ever existed in the history of man.” However, the SEC alleges that these investments served a less noble purpose and that Heart reportedly used millions of dollars from PulseChain’s investments for personal luxuries including the largest black diamond in the world, as well as, luxury properties and cars. This misuse of funds was not disclosed to investors, further implicating Heart in fraudulent activities.
Initial Troubles and Post-Launch Declines
PulseChain and PulseX, which launched earlier this month, faced a series of challenges including high transaction fees, liquidity issues, and technical bugs that could be exploited. These struggles were reflected in the immediate drop in value of their associated tokens, HEX, PLS, and PLSX.
Despite the struggles, Heart continued to tout the potential of his projects. He claimed on Hex’s official website that Hex was designed to surpass ETH, which did 10,000x price in 2.5 years.
The Ripple Case Effect
The SEC’s case against Heart occurs on the heels of its lawsuit against Ripple Labs, the company behind the XRP cryptocurrency. With many speculating that the Ripple decision may affect the outcome of the Heart case which is currently still a civil matter. It remains to be seen if Heart will also be criminally charged.
Echoes of Previous Allegations
The suit also points out that Heart frequently referenced federal securities laws in his YouTube livestreams and public statements. It further alleges that Heart himself admitted that the success of his projects were entirely dependent on his efforts, a clear echo of the securities law principle that a security is an investment in a common enterprise with the expectation of profit solely from the efforts of the promoter or third party.
This case joins a growing list of legal actions that the SEC has taken against individuals and companies in the crypto space. The outcome of this case could set an additional precedent for future enforcement actions and further clarify the regulatory landscape of digital assets in the U.S.
As the legal proceedings unfold, it remains to be seen how this case will impact the SEC’s regulatory reach and the future of the broader cryptocurrency market. This case serves as a reminder to potential investors about the necessity of due diligence, the reality of risk, and the potential for misinformation in the still largely unregulated world of cryptocurrencies.
