The US Securities and Exchange Commission has adamantly opposed Hex founder Richard Heart’s motion to dismiss the $1 billion securities fraud lawsuit, asserting its jurisdiction over the case. The SEC argued in a New York federal court filing that Heart’s attempt to dismiss the lawsuit does not adequately address the allegations outlined in the complaint and disregards pertinent legal standards.
According to official SEC documents, Heart marketed Hex, a crypto asset security, as a “blockchain certificate of deposit” between December 2019 and November 2020. He made bold claims about the asset, promising consistently increasing token holdings through staking and boasting about high returns. These claims attracted significant investments, with investors reportedly contributing $678 million worth of ETH. However, despite the promises, Hex’s value dropped by around 98.4% from its peak as of July 2023.
Allegations Against PulseChain and PulseX
Aside from Hex, the SEC also scrutinized Heart’s involvement in PulseChain and PulseX. The regulator accused Heart of soliciting over $354 million for PulseChain by requesting crypto asset “sacrifices,” which he allegedly used for personal extravagances like luxury watches, cars, and a claimed world’s largest black diamond, rather than platform development. Heart purportedly funneled approximately $217 million through transfers and a crypto mixer, misappropriating $12.1 million for lavish purchases. In addition, PulseChain and PulseX failed to launch as promised until May 2023, long after the fundraising periods had concluded.
The SEC highlighted Heart’s marketing tactics, emphasizing his extensive focus on US investors. He made virtual appearances at conferences in Las Vegas and participated in an in-person interview on a Miami-based podcast. These actions underscore the case’s relevance to US regulatory oversight, as the agency pointed out the deliberate targeting of US investors in Heart’s promotional efforts.
Free Speech Argument
In his motion to dismiss, Heart contended that the SEC’s lawsuit encroaches on his free speech rights. He claimed that the regulator’s reliance on his statements to support allegations of securities offerings could potentially stifle protected speech within the blockchain industry. This argument poses an interesting dimension to the case, raising questions about the intersection of free speech and regulatory oversight in the digital asset landscape.
The SEC’s vigorous opposition to Heart’s dismissal motion sheds light on the complexities of securities fraud cases involving digital assets and the regulatory challenges that come with them. The outcome of this lawsuit will likely have broader implications for the cryptocurrency industry and the enforcement of investor protection measures.
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