The U.S. Securities and Exchange Commission has argued that it has jurisdiction to pursue the case in response to Hex founder Richard Hart’s attempt to dismiss a lawsuit filed against him.
The regulator argued that Heart’s motion to dismiss should be denied, according to a document the agency filed in the U.S. District Court for the Eastern District of New York, dated July 8 but made public only Thursday.
“Hart ignored the complaint’s well-argued arguments and the applicable law in his motion asking the court to dismiss all claims against him,” SEC attorneys said in the filing.
The SEC sued Richard Schueler, better known as Richard Heart and founder of Hex and PulseChain, in 2023, accusing him of raising more than $1 billion in an unregistered securities offering and using the proceeds to buy luxury cars, designer clothes, and a rare black diamond called The Enigma worth more than $4 million.
The SEC said Hex had a staking component, allowing investors to stake Hex tokens and lock them up for more Hex tokens later. Heart claimed that investors could earn a 38% return by staking their Hex tokens. The SEC said in its lawsuit: He added that most of the demand for Hex comes from: ArtificialWith “Between 94% and 97% of the ETH deposited into the wallet was recycled through so-called cryptocurrency trading platforms.
Hart’s attorneys countered those claims in a motion to dismiss the SEC’s lawsuit, arguing that Hart did not commit fraud because he never promised investors anything.
“The SEC’s fraud claims are dismissed because the complaint alleges no fraud,” they said. “The SEC claims that ‘investors invested over $354 million in cryptocurrency assets in PulseChain,’ and that Mr. Heart used approximately $8.9 million of the PulseChain assets to purchase luxury items. The complaint is strikingly silent, however, as to what Mr. Heart intends to do with the assets, as he fails to promise anything.”
But in a recent SEC filing, attorneys alleged that Heart defrauded PulseChain investors by using the funds for his own “personal luxury purposes.”
“Hart knew that he had purchased the watches, cars and large black diamonds not with actual profits from his own business, but with investors’ money,” SEC attorneys said.
Heart’s attorney also argued that Heart lives overseas and “is not accused of any activity targeting the United States.”
The SEC countered in a July filing, arguing that Heart “cannot avoid jurisdiction of the court solely because he resides overseas.” The agency’s lawyers pointed to in-person appearances in Miami, virtual appearances in Las Vegas, and “extensive marketing” to potential U.S. investors to prove their case.
Heart’s lawyers argued that Hex, PulseChain, and Pulse X are neither investment contracts nor securities. The lawyers said the three are “decentralized blockchain technologies.”
“Hex was built as a superior alternative to Bitcoin, designed to perform ‘better’ than Bitcoin,” the attorneys said. “Like Bitcoin, which the SEC has ruled is not a security, Hex allegedly has no actual or intended functionality beyond the mechanisms built into its software code. The complaint does not allege that individuals were intended to do anything with Hex tokens other than store them in a digital ‘wallet’ on the Ethereum network and use the aforementioned software functionality.”
The SEC again said that Heart sold Hex, Pulse, and Pulse X as investment contracts, which are securities.
The next hearing is scheduled for October 24th.
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