Richard Heart (aka Richard Schueler) and his three unincorporated entities Hex, PulseChain, and PulseX, have been charged by the SEC for orchestrating unregistered offerings of crypto asset securities that raised more than $1bn in crypto from investors.

Heart and PulseChain have also been charged with fraud for misappropriating at least $12m of the funds on luxury goods – which included sports cars, watches, and the 555-carat black diamond ‘The Enigma’, which is reportedly the largest black diamond in the world.

As stated in the complaint, Heart began promoting Hex in 2018 as the first high-yield “blockchain certificate of deposit,” and that the Hex tokens would be an investment that would make people “rich”.

Spent investor funds on luxury goods

Allegedly, from at least December 2019 through November 2020, Heart and Hex offered and sold Hex tokens and collected over 2.3m Ethereum, which some happened through so-called “recycling” transactions that helped Heart to secretly gain control of more Hex tokens.

He also ran two additional unregistered crypto asset security offerings between July 2021 and March 2022 – which each raised hundreds of millions in cryptocurrencies.

The raised funds, of the native crypto tokens PLS and PLSX, were intended to support development of the “supposed” crypto asset network PulseChain, and the claimed crypto trading platform, PulseX.

“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,” said Eric Werner, Director of the Fort Worth Regional Office.

Heart also created and promoted a “staking” feature for the Hex tokens, which he said would provide returns to as much as 38%.

Furthermore, the complaint alleges that Heart tried to avoid securities laws by telling investors to “sacrifice” their crypto – instead of “investing” it – in exchange for PLS and PLSX tokens.

“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, Fort Worth Regional Office

The SEC’s complaint, which was filed in US District Court for the Eastern District of New York, seeks injunctive relief, disgorgement of ill-gotten gain, plus prejudgment interest, penalties, and other equitable relief.

The complaint also alleges that Heart, Hex, PulseChain, and PulseX violated the registration provisions of Section 5 of the Securities Act of 1933. Heart and PulseChain also allegedly violated the antifraud provisions of the federal securities laws.