SEC charges HEX founder Richard Heart with fraud

Hex founder Richard Heart’s luck finally ran out after America’s securities regulator slapped fraud charges on the bling-loving conman.

On Monday, the U.S. Securities and Exchange Commission (SEC) brought civil charges against Heart, aka Richard Schueler, and his Hex, PulseChain and PulseX entities for offering unregistered securities that raised over $1 billion from customers.

The SEC is also alleging Heart committed fraud by “misappropriating at least $12 million” of the funds raised to buy luxury goods, apparently to perpetuate the illusion of wealth that his marks might one day enjoy. The SEC wants Heart to forfeit all his ill-gotten gains and to be permanently enjoined from ever taking part in any future digital asset scams.

Richard Heart, aka his real name, Richard Schueler, was sued by the @sec this morning. I’ve been listening to the influencers on Spaces try to talk about it, and they just are so behind. If you want to catch up, just ask me. See below for what I’ve released on Ricky Heart 👇🧵

— TruthLabs 💄 (@BoringSleuth) July 31, 2023

HEX debuted in December 2019 as an ERC-20 token on the Ethereum network with a focus on yield farming. Customers were urged to buy HEX with ETH and stake their HEX—as a ‘Blockchain Certificate of Deposit’—with the expectation that they’d receive even more HEX down the road, by which time the value of each HEX would have soared. Allegedly.

The SEC claims Heart repeatedly told HEX stakers they would receive annual returns of 38%. Heart also promoted staking by distributing unclaimed HEX and other goodies through a rewards program called BigPayDay, with greater rewards for those who committed to longer staking lock-ups. In November 2020, just as the initial HEX offering was about to close, Heart greased the wheels by claiming that BigPayDay’s total available rewards were over $1 billion.

Hex’s staking terms could be ridiculous—15-year durations were available—and featured penalties for early withdrawal. There were also penalties for not withdrawing one’s stake within a narrow window following maturity. Half of the penalties were distributed amongst other Hex stakers, while the other half went to a so-called ‘flush’ address, which was long suspected (and is now confirmed) as being under Heart’s control.

Staking HEX resulted in a corresponding ‘burn’ of the same number of HEX, with the idea of creating artificial scarcity to further boost the value of the remaining HEX in circulation. But since new HEX were minted upon stake maturation to honor the promised rewards, this was always a shell game. Regardless, the only way to realize any real-world gains was to sell HEX for cash or some less illiquid token, either of which required a steady supply of greater fools.

The SEC claims more than 2.3 million ETH worth some $678 million at the time were invested in Hex in its first year. However, “94-97%” of the activity in this first year was “’recycling’ transactions directed by Heart or other insiders.” The net result was a “false impression of significant trading volume and organic demand” for HEX, while allowing Heart and his cohorts to “gain control of a large number” of HEX.

Can’t locate a pulse

From the start, Hex employed classic Ponzi strategies, including the promise of ever greater rewards for those who chose to lock up their HEX for longer periods of time, allowing Heart more time to enlist other marks into his rigged game before having to pay out anything.

But the illusion of perpetual growth is impossible to sustain, so Heart soon began pimping PulseChain, an Ethereum fork promising lower transaction fees than the perpetually clogged main Ethereum layer. Between July 2021 and April 2022, investors put over $354 million into PulseChain and another $676 million into PulseX, a decentralized finance (DeFi) swap platform. The SEC accuses Heart of promoting both PulseChain and PulseX as likely to increase HEX’s value.

Nearly two years after their announcement, the Pulse products still hadn’t arrived, leading to ‘vaporware’ accusations. PulseChain finally launched this May but Heart urged users (surprise!) not to do anything with their PLS tokens except hang on and wait for their value to rise as other users spent PLS to pay for their PulseChain transaction fees. (To virtually no one’s surprise, the tokens’ value failed to rise.)

The SEC says HEX, PLS, and PLSX tokens all meet the Howey Test requirements for identifying securities offerings. The SEC further accuses Heart of making “veiled references about why investors can expect profits while also making tongue-in-cheek disavowals.” The SEC claimed these “efforts to obfuscate are unavailing.”

The SEC says Heart made “superficial disclaimers” about his products not being securities under U.S. law, despite the fact that Heart’s own YouTube videos made it clear that “the success of these endeavors were completely dependent on his efforts (and/or the efforts of others), and not on the efforts of the investors themselves.”

Conspicuous consumption

While all this was going on, the SEC claims Heart sent $217 million of the PulseChain offering’s proceeds to a private wallet. On January 26, 2022, after the PulseChain offering had closed, Heart sent $26.5 million worth of the Tether (USDT) stablecoin from this wallet “in 22 back-and-forth transactions resulting in approximately $26 million in ETH” deposited into this wallet.

This $26 million in ETH was then funneled into an unspecified coin-mixing service, the results of which were sent to “at least 50 intermediary wallets.” Heart then forwarded the newly washed assets to three unspecified digital asset platforms.

Heart proceeded to embark upon shopping sprees in the U.S., Estonia and Finland with PulseChain investor assets, buying sports cars (a McLaren and a Ferrari Roma) plus multiple six-figure watches and one Rolex that cost $1.38 million. Heart also spent £3.16 million ($4.28 million) on a 555.55-carat black diamond called ‘The Enigma’ from Sotheby’s.

What Heart?

Of all the ‘crypto’ ponzi schemes out there, probably none was more blatant than Hex about its disconnection from any real-world benefit. Heart released videos promoting Hex as the token for those who “want to get rich” with claims that Hex was “built to be the highest appreciating asset that has ever existed in the history of man. That’s the design intention.”

Nor was there any crypto project front man other than Heart, who seemed more comfortable playing the role of its clown prince. Heart routinely posted videos of himself loaded down with bags full of luxury goods and cladding himself head-to-toe in truly garish but extremely pricey apparel, evidently convinced that this was drawing in additional marks.

$10,000 fit. #prada #valentino find the #chanel.

— Richard Heart (@RichardHeartWin) September 30, 2022

Heart began scrubbing his online social media profiles this spring, mere months after Hex influencers reported receiving subpoenas from the SEC looking for “documents and data that are relevant to an ongoing investigation.”

Heart is currently residing in Finland, but the SEC says his targeting of U.S. ‘investors’ for his schemes eliminates any jurisdictional issues. Heart’s use of New York-headquartered Uniswap further demolishes his ability to evade the long arm of U.S. law. The only question seems to be when the Department of Justice (DOJ) will file criminal charges that will lead to Heart’s extradition to American shores so we can see what he looks like in prison orange coveralls.

Criminal charges may arrive sooner than you think, particularly if the DOJ gets a look at some of Heart’s alleged on-chain interactions with some truly unsavory characters.

They know fraud because they live it

It’s worth remembering that Heart chose to introduce himself to the digital asset sector by going to a 2019 conference in Malta and heckling Dr. Craig Wright, chief scientist at enterprise blockchain technology researchers nChain. With Heart being a nobody at the time, he decided that publicly annoying an established figure in the digital asset space was his ticket to notoriety.

Once again, we see that those who seek to undermine Wright’s credibility are invariably exposed as real frauds. Be it Roger VerBinance founder Changpeng ‘CZ’ Zhao, or MicroStrategy’s Michael Saylor, one doesn’t have to wait long for Wright’s antagonists to find themselves in the regulatory crosshairs.

Or, as this site’s founder observed Monday morning: “Everyone attacking Craig is involved in crime…that you can go to the bank with.”

everyone attacking Craig is involved in crime…that you can go to the bank with.

— Calvin Ayre (@CalvinAyre) August 1, 2023

This tarnished group may soon include Ethereum founder Vitalik Buterin, whose ‘world computer’ network has been responsible for most of the fraudulent initial coin offerings and DeFi rug pulls that have given the digital asset sector its reputation as the financial world’s no-go zone.

Buterin, who has also assailed Dr. Wright’s character, was among the Ethereum Foundation members and early investors who kept a significant chunk of the ETH that was pre-mined before the network’s 2014 launch. Even then, despite individual buyers being ‘limited’ to a maximum of 12.5% of the remaining tokens, ETH buyers needed to supply only an email address, not exactly the highest bar to clear.

That specter of centralized control has grown since Ethereum’s ‘merge’ from a proof-of-work consensus mechanism to one based on proof-of-stake. Ethereum’s rich have only gotten richer, while their share of voting power means an increased risk of transaction censorship that the network’s more libertarian-focused members don’t appreciate.

With the New York Attorney General’s office having already declared ETH to be an unregistered security, it seems only a matter of time before the SEC follows suit (in writing). With reports over the weekend that the SEC told Coinbase several months ago that all tokens on its exchange besides Bitcoin were unregistered securities, some kind of action against the principals behind ETH seems inevitable. And, some would say, long overdue.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance,, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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