Decoding Crypto Allegations: Hex Token, PulseX, and PulseChain Under SEC Scrutiny

The Securities and Exchange Commission today filed charges against Richard Heart (also known as Richard Schueler) and three unincorporated entities under his control, Hex, PulseChain, and PulseX. The charges allege unregistered offerings of crypto asset securities, raising over $1 billion from investors. Additionally, Heart and PulseChain face fraud charges for misappropriating at least $12 million from the offerings to purchase luxury goods, including sports cars, watches, and a 555-carat black diamond referred to as ‘The Enigma’ – reportedly the world’s largest black diamond.

According to the SEC’s complaint, Heart began marketing Hex as the first high-yield “blockchain certificate of deposit” in 2018, promoting it as an investment opportunity to make investors wealthy. From December 2019 through November 2020, Heart and Hex conducted an unregistered offering of Hex tokens, collecting more than 2.3 million Ethereum (ETH), including through “recycling” transactions to gain control of additional Hex tokens discreetly. The complaint further alleges that between July 2021 and March 2022, Heart orchestrated two more unregistered crypto asset security offerings that raised hundreds of millions more in crypto assets. These funds were supposedly intended to support the development of PulseChain, a crypto asset network, and PulseX, a crypto asset trading platform, through their native tokens PLS and PLSX, respectively. Heart also claimed a “staking” feature for Hex tokens, promising returns as high as 38 percent. The complaint accuses Heart of encouraging investors to “sacrifice” their crypto assets in exchange for PLS and PLSX tokens to evade securities laws.

“Heart urged investors to buy crypto asset securities in unregistered offerings, while misusing some of their crypto assets to purchase extravagant luxury goods,” stated Eric Werner, Director of the Fort Worth Regional Office. “This action aims to safeguard the investing public and hold Heart accountable for his actions.”

The SEC’s complaint, filed in U.S. District Court for the Eastern District of New York, alleges violations of the registration provisions of Section 5 of the Securities Act of 1933 by Heart, Hex, PulseChain, and PulseX. Additionally, it accuses Heart and PulseChain of violating the antifraud provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, penalties, and other equitable relief.

The SEC’s ongoing investigation is conducted by Jaime Marinaro and Derek Kleinmann of the Fort Worth Regional Office, with assistance from Jamie Haussecker and supervised by Sarah S. Mallett and Eric Werner of the Fort Worth Regional Office, as well as Jorge G. Tenreiro and David Hirsch of the Crypto Assets and Cyber Unit. The litigation will be overseen by Matthew J. Gulde and supervised by B. David Fraser.

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