SEC Rejects Dismissal Motion in Richard Heart’s $1 Billion HEX Case

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Jimmy Aki

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Jimmy Aki

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Jimmy has nearly 10 years of experience as a journalist and writer in the blockchain industry. He has worked with well-known publications such as Bitcoin Magazine, CCN, and Blockonomi, covering news...

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August 23, 2024

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Richard Heart, whose real name is Richard Schueler, is accused of defrauding investors of more than $1 billion by selling unregistered securities.

The SEC’s lawsuit alleges that Heart misused approximately $8.9 million of investor funds to purchase luxury items, including Ferraris, Gucci products, and a rare black diamond known as the Enigma, which he reportedly acquired for $4.3 million.

Background of the SEC and Richard Heart’s Case And the Dismissal Motion

Last week, Heart’s legal team filed a motion to dismiss the case, arguing that Heart lives outside the U.S. and did not offer products to American citizens.

Heart’s lawyers argued that the SEC failed to demonstrate any connection between Heart and the United States. The SEC didn’t provide evidence of US-based entities, employees, or contracts. There was also no evidence of marketing efforts targeting the US or travel by Heart representatives to the US.

In response, the SEC has asked the U.S. District Court for the Eastern District of New York to reject Heart’s motion for a dismissal.

The financial watchdog countered Heart’s claims by asserting that he “directed many of his promotional efforts specifically toward investors in the United States.”

The SEC cited Heart’s virtual appearances at Las Vegas conferences in March and September 2022, where he promoted HEX, PulseChain, and PulseX. Another event was Heart’s in-person interview on a Miami-based podcast in August 2022, where he promoted HEX and PulseChain.

The regulatory agency maintains that HEX, PulseChain, and PulseX are unregistered securities, alleging that Heart marketed HEX as a staking product, promising investors a 38% reward in additional tokens.

Furthermore, the SEC claims that 94% – 97% of the Ethereum (ETH) deposited in related wallets was recycled back into crypto exchanges, suggesting potentially fraudulent demand.

Heart’s Lawyers Defense’s Arguments on HEX, PulseChain, and PulseX

In contrast to the SEC claims, Heart’s lawyers argue that HEX, PulseChain, and PulseX are decentralized blockchain technologies, not investment contracts classifiable as securities.

They draw comparisons between HEX and Bitcoin, which the SEC has not classified as a security.

Heart’s lawyers wrote,

“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.”

The defense maintains that HEX token holders were not required to do anything beyond using certain software features.

Amidst this legal battle, cryptocurrency influencer Ben Armstrong, known as BitBoy, has defended HEX, claiming the project is not a scam.

Armstrong pointed out that HEX’s staking model has consistently rewarded users, even amid the legal challenges facing its founder.

Addressing the upcoming proceedings, Richard Heart took to Twitter to share his perspective, saying, “Next up, oral arguments, Oct. 24th”

“Code is speech. Blockchains are speech. Speech is a protected human right. Freedom of movement and assembly are also protected human rights,” he added.