The United States Securities and Exchange Commission (SEC) is grappling with challenges in serving a lawsuit against Richard Heart, also known as Richard Schueler, the founder of Pulsechain, PulseX, and the controversial project Hex. This legal action was filed on July 31st, accusing Heart of selling unregistered securities and deceiving investors. However, the process of serving the lawsuit has encountered obstacles, leaving the SEC to explore alternative methods of delivery.
The SEC’s Allegations
The SEC’s lawsuit revolves around Heart’s alleged violation of federal securities laws through the unregistered offer and sale of securities in his projects, Hex, PulseChain, and PulseX. The complaint highlights the fundraising activities that garnered over $1 billion for these ventures. The SEC further asserts that Heart defrauded investors by misappropriating funds, diverting as much as $12 million for personal acquisitions rather than utilizing them for the development of the protocols. Heart’s extravagant purchases, including a McLaren sports car, a Ferrari, and five watches, were cited as examples of his misuse of funds.
Moreover, the SEC’s lawsuit focuses on Heart’s control over the projects, his statements pertaining to potential increases in value, and the staking feature designed to incentivize token holders to lock up their tokens in exchange for more tokens. The commission highlights Heart’s previous claims that Hex was designed to be “the highest appreciating asset.” This, coupled with the substantial decline in the price of Hex and the perceived worthlessness of tokens for PulseChain and PulseX, forms the basis of the SEC’s securities law violation allegations.
Difficulties in Serving the Lawsuit
The U.S. SEC is facing challenges in serving the lawsuit against Richard Heart. Despite requesting the Ministry of Justice of Finland to serve the lawsuit in Helsinki, there has been no confirmation of successful service. Consequently, a teleconference initially scheduled for November 28 has been rescheduled to January 30, 2024, by Magistrate Judge Peggy Kuo, who oversees the case in the Eastern District of New York.
The SEC argues for jurisdiction in the Eastern District based on the assertion that many of the crypto asset transactions related to the case were conducted on Uniswap, a decentralized crypto asset trading platform with developers based in Brooklyn. In a recent filing, the SEC stated that it would update the court on the status of its service efforts under the Convention by December 15, 2023. If the service has not been achieved by that time, the SEC intends to seek alternative methods of delivery in accordance with Rule 4(f) of the Federal Rules of Civil Procedure.
The SEC’s pursuit of legal action against Richard Heart highlights the commission’s commitment to enforcing securities laws in the crypto industry. The allegations of selling unregistered securities, defrauding investors, and misleading statements regarding the potential appreciation of Hex have significant implications for Heart and his projects, Hex, PulseChain, and PulseX.
However, the SEC now faces the challenge of serving the lawsuit upon Heart, which has proven to be more complicated than anticipated. The inability to effectuate service thus far has led the SEC to consider alternative methods of delivery to ensure that Heart is properly made aware of the charges against him.
The outcome of this case will undoubtedly have far-reaching consequences for the regulation and oversight of cryptocurrency projects, as well as investor protection in the rapidly evolving digital asset space. As the legal proceedings continue, the industry awaits further developments in this high-profile case.
