Hex crypto founder used investor funds to buy $4.3 million black diamond, SEC says
Cryptocurrency influencer Richard Heart defrauded investors of millions he obtained through the illegal sale of unregistered crypto asset securities, which he then used to make extravagant purchases, the Securities and Exchange Commission claims.
The YouTuber misappropriated at least $12 million in investor funds, according to the lawsuit filed Monday, funds that he raised through his crypto ventures Hex, PulseChain and PulseX — all three of which he controls. He then spent the money on "exorbitant luxury goods," including a 555-karat black diamond called The Enigma, worth roughly $4.3 million, the suit claims. His other alleged splurges included a $1.38 million Rolex watch, a $534,916 McLaren sports car and a $314,125 Ferrari Roma, according to the complaint.
"I want to be the best crypto founder that's ever existed. I like doing – I like owning the world's largest diamond," Heart stated in a January 2023 Hex Conference (available on YouTube) cited by the SEC.
On one occasion, Heart "immediately transferred" $217 million of investor assets from PulseChain's crypto assets account of $354 million, into "a private held wallet," the complaint states.
Today we charged Richard Heart (aka Richard Schueler) and three unincorporated entities that he controls, Hex, PulseChain, and PulseX, with conducting unregistered offerings of crypto asset securities that raised more than $1 billion in crypto assets from investors.
— U.S. Securities and Exchange Commission (@SECGov) July 31, 2023
One man, three crypto entities
Heart launched Hex, an Etherium-based token, in 2019, aggressively promoting its potential on his Youtube channel as, "the highest appreciating asset that has ever existed in the history of man," the complaint states.
He began raising funds, between July 2021 and April 2022, for PulseChain and PulseX, two crypto platforms that he
"designed, created, and maintained," and which have their own native tokens.
"Beginning in December 2019, and continuing for at least the next three years, Heart raised more than $1 billion," operating through the three entities of Hex, PulseChain and PulseX, according to the SEC.
"Although Heart claimed these investments were for the vague purpose of supporting free speech, he did not disclose that he used millions of dollars of PulseChain investor funds to buy luxury goods for himself," the SEC's lawyers said in the lawsuit.
Heart also accepted more than 2.3 million ether tokens from December 2019 to November 2020, worth more than $678 million at the time, as noted in the lawsuit. However, 94% to 97% of those tokens were "directed by Heart or other insiders," enabling them to gain control of a large number of Hex tokens while "creating the false impression of significant trading volume and organic demand" for the tokens.
"Heart pumped Hex's capacity for investment gain," the lawsuit states.
Crackdown on unregistered securities
The SEC is also suing Heart for securities registration violations. All three of his crypto projects are considered unregistered securities.
Each of the three tokens is "was, and is, a crypto-asset security," the SEC's lawyers allege in the lawsuit, that should have been registered according to the suit, and therefore "violated the federal securities laws through the unregistered offer and sale of securities."
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Regulators from the SEC are cracking down on cryptocurrencies following the high-profile implosions of crypto exchange FTX and the crash of so-called stablecoin TerraUSA and its sister token, luna, last year. SEC Chairman Gary Gensler said at the time that he believes "the vast majority" of the nearly 10,000 tokens in the crypto market at that time were securities.