The U.S. Securities and Exchange Commission charged Richard Heart, the founder of Hex, with the misappropriation of millions from investor funds raised through unregistered crypto asset securities offerings, which garnered more than $1 billion. Allegedly, between December 2019 and November 2020, Heart and Hex conducted an unregistered offering, accumulating more than 2.3 million Ethereum (ETH).
“Heart called on investors to buy crypto asset securities in offerings that he failed to register. He then defrauded those investors by spending some of their crypto assets on exorbitant luxury goods,” Eric Werner, director of the Fort Worth Regional SEC Office, said in a July 31 news release. “This action seeks to protect the investing public and hold Heart accountable for his actions.”
The SEC charged Heart and three entities under his control — Hex, PulseChain and PulseX — for conducting unregistered offerings of crypto asset securities, the release reported. Heart and PulseChain are also charged with fraud for misappropriating at least $12 million of the offering proceeds to purchase luxury goods, including sports cars, watches and a 555-carat black diamond known as "The Enigma."
According to the release, Heart promoted Hex as a high-yield "blockchain certificate of deposit" since 2018 and marketed Hex tokens as an investment to make people wealthy.
The complaint alleges unregistered offerings of Hex tokens collected more than 2.3 million ETH through "recycling" transactions, which secretly allowed Heart to control more Hex tokens. Additional unregistered offerings for PulseChain and PulseX raised hundreds of millions of dollars more in crypto assets. Heart also promoted a "staking" feature for Hex tokens, claiming it would deliver high returns of up to 38% and used language like "sacrifice" instead of "invest" to evade securities laws, the release said.
The SEC's complaint alleges Heart, Hex, PulseChain and PulseX violated the registration provisions of the Securities Act of 1933. It also claims Heart and PulseChain violated the antifraud provisions of the federal securities laws, the release reported.
The complaint seeks injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, penalties and other equitable relief. The SEC's investigation is ongoing and conducted by staff members from the Fort Worth Regional Office, including Jaime Marinaro, Derek Kleinmann and Jamie Haussecker, under the supervision of Sarah S. Mallett, Eric Werner, Jorge G. Tenreiro and David Hirsch of the Crypto Assets and Cyber Unit. The litigation will be conducted by Matthew J. Gulde, supervised by B. David Fraser, according to the release.
