Regulation

US SEC Counters Richard Heart’s Attempt to Dismiss Lawsuit Over Hex

Published

4 weeks ago

August 23, 2024

The U.S. Securities and Exchange Commission (SEC) has resisted Hex founder Richard Heart’s efforts to dismiss the lawsuit filed against him. This comes after Heart’s legal team filed a motion stating that the regulatory agency lacks jurisdiction in the case and that no securities were transacted.

U.S. SEC Challenges Motion to Dismiss

In a filing, the U.S. SEC has asked the U.S. District Court for the Eastern District of New York to reject Heart’s motion to dismiss the case. Heart, whose real name is Richard Schueler, is charged with defrauding investors with more than $1 billion through unregistered securities sales on Hex, PulseChain, and Pulse X.

The U.S. Securities and Exchange Commission has accused Heart of using about $8. 9 million of investor funds from PulseChain to shop for luxury items such as Ferraris, Gucci, and a rare black diamond, the Enigma, which he bought for $4.3 million.

#PulseChain News:
Richard Heart case @RichardHeartWin MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT RICHARD HEART’s MOTION TO DISMISS pic.twitter.com/gfQeIyXREA
— PulseXTokens.com (@PulsexTokens) August 22, 2024

Other allegations are that Heart was marketing Hex as a staking product where investors would have to put their tokens ‘to stake’ and get a reward of 38% more tokens. As the agency pointed out, most of the demand for Hex was likely fraudulent, with 94%- 97% of the Ethereum (ETH) deposited in the related wallets being ploughed back into the crypto exchanges.

Jurisdictional and Fraud Dispute

Heart’s defense also argues that he resides in another country and has not taken any action targeted towards the United States thus raising an issue on the jurisdiction of the SEC. Nevertheless, the agency argued that Heart had been present in the U.S. physically and virtually, as well as advertising to U.S. investors.

However, the US SEC pointed out that Heart’s actions are within the jurisdiction of the U.S. since he cannot escape the law by living in another country.

Concurrently, the United States Ninth Circuit Court of Appeals has recently partly reversed the dismissal of a class-action lawsuit against Binance US. In the lawsuit, he alleges that Binance US manipulated the price of HEX cryptocurrency.

Defense’s Argument and Rebuttal

Richard Heart’s lawyers state that Hex, PulseChain, and Pulse X are decentralized blockchain technologies and not investment contracts to be classified as securities. They compare Hex to Bitcoin, which the regulatory agency has recognized as not a security, and stress that Hex is nothing more than a code with defined functions.

As per Heart’s defense, the token holders of Hex tokens did not have to do anything more than use certain features of the software. Nonetheless, the U.S. SEC keeps affirming that Heart sold Hex, PulseChain, and Pulse X as investment contracts, which makes them securities as per the laws of the United States.

Moreover, cryptocurrency influencer Ben Armstrong, also known as BitBoy, defended HEX in a video in January, claiming that the project is not a scam. Armstrong noted that HEX’s staking model, which has been a subject of controversy, has always rewarded its users, even with the legal issues that the platform’s founder is facing.