The US Securities and Exchange Commission has contested Hex founder Richard Heart’s attempt to dismiss its $1 billion securities fraud lawsuit, asserting its jurisdiction over the case.
In its opposition brief, filed in a New York federal court on August 22 but dated July 8, the SEC contended that Heart’s motion to dismiss fails to address the well-supported allegations in the complaint and ignores relevant legal standards.
Heart had previously argued in his dismissal motion that the regulator lacks authority because he resided abroad and had no presence in the US during the relevant period.
SEC Alleges Misuse of Funds and Challenges Heart’s Defense
According to the official SEC document, from December 2019 to November 2020, Heart marketed Hex as a crypto asset security, branding it as a “blockchain certificate of deposit” with the promise of consistently increasing token holdings through staking.
Heart’s claims, which included promises of high returns and the assertion that Hex was the “highest appreciating asset ever,” attracted significant investment.
In fact, investors were said to have poured in $678 million worth of ETH, and the SEC highlighted that despite these grand promises, Hex’s value plummeted by approximately 98.4% from its all-time high as of July 2023.
Further allegations involve Heart’s subsequent ventures, PulseChain and PulseX. The regulator accused Heart of raising over $354 million for PulseChain by soliciting “sacrifices” of crypto assets, which were later used for personal luxuries, including high-end watches, cars, and what he claims is the largest black diamond in the world, rather than the development of the platform.
To obscure these transactions, Heart allegedly moved approximately $217 million through a series of transfers and a crypto mixer, ultimately misappropriating $12.1 million for luxury purchases.
Additionally, the SEC mentioned that PulseChain and PulseX did not launch as promised until May 2023, long after the fundraising periods ended.
Heart’s Free Speech Argument Dismissed by SEC
The agency also emphasized that the founder’s marketing efforts were extensively targeted at US investors and pointed out virtual appearances at conferences in Las Vegas and an in-person interview on a Miami-based podcast, which essentially further underscored the case’s relevance to US regulatory oversight.
Heart’s dismissal motion also argued that the SEC’s case infringes on his free speech rights, claiming that the regulator’s use of his commentary to allege securities offerings could potentially suppress protected speech on the blockchain. The SEC, however, dismissed this argument as “untenable.”