Crypto project Hex’s founder, Richard Heart, has been charged by the US Securities and Exchange Commission (SEC) for allegedly conducting $1 billion worth of unregistered securities offerings.
Three unincorporated entities were also included in the charges filed by the securities regulator, which are Hex, PulseX and PulseChain.
The charges filed against PulseChain and Hex include use of offering proceeds of about $12 million for purchasing luxury goods, including ‘The Enigma’, a black diamond of about 555 carat.
The complaint from the SEC said that Heart had first started promotions of the Hex project back in 2018 and had called it the first ‘blockchain certificate of deposit’ offering a high yield.
The agency also stated that Heart had promoted investment in the Hex tokens as a way for people to become ‘rich’.
A staking feature that could generate returns as high as 38% had also been touted by Heart and the SEC is also taking this into account.
The regulator has alleged that Heart had urged those investing in Hex to ‘sacrifice’ their crypto holdings instead of investing them, thereby evading securities laws.
The director of the regional office in Fort Worth, Eric Werner said that Heart had not registered crypto asset securities that he had asked investors to purchase.
He added that Heart then used the crypto assets of investors for purchasing luxury goods, thereby defrauding those who had invested with him.
The lawsuit in question has been filed in New York in the US District Court for the Eastern District by the SEC.
The lawsuit also states that Heart had claimed that his crypto project was actually the highest appreciating asset to have existed in all of history.
The lawsuit also contains quotes from Heart that were picked from his YouTube live streams. In one live stream back in 2019, Heart claimed that Hex is meant for those who want to get rich.
The Howey test
It is with such statements that both Heart and his crypto project clash with the Howey test, which has been under discussion recently.
This legal test is used for determining if an asset can be classified as a security, which means investors have profit expectations associated with it.
The lawsuit filed by the SEC highlights the misappropriation of funds, which is actually related to an offering conducted by PulseChain that had started in July 2021 and was also unregistered.
According to the allegations, Richard Schueler, which is Heart’s real name, bought five Rolex watches worth $3.4 million, a Ferrari Roma worth $314,125 and a McLaren sports car worth $534,916.
The SEC has also highlighted a third offering that was also unregistered, which was conducted by PulseX. This is when Heart claimed that it was possible to make returns of 10,000x within a period of two years.
The filing from the SEC noted that there had been a massive depreciation recorded in the price of PulseX, Hex, and PulseCoin.
The lawsuit dictated that PLSX and PLS have become almost completely worthless at this time, while there has been a 98.4% drop in the price of Hex from its all-time high value.