SEC rejects Richard Heart’s bid to drop $1 billion lawsuit

The U.S. Securities and Exchange Commission has soundly rejected Richard Heart’s attempt to dismiss the $1 billion securities lawsuit against him. Richard Heart, the mastermind behind HEX, PulseChain and PulseX, claimed that the SEC lacked authority over him, largely due to his non-U.S. residency, and alleged that the SEC failed to demonstrate that domestic securities transactions had occurred or that fraudulent acts had occurred.

The SEC responded in more detail that the focus was on American investors for the projects Heart had in mind. The SEC noted that Heart actively sought to market its projects to the American public through various platforms, such as virtual conferences and podcasts hosted in the United States.

In addition, the SEC accuses Heart of employing an American developer who is involved in the development of the projects Heart has embarked on. According to the SEC, this gives Heart jurisdiction in this case.

That lawsuit was filed in July 2023; it alleged that Heart violated securities laws and accepted more than $1 billion in unregistered securities sales related to HEX, PulseChain and PulseX. The SEC alleged that Heart spent some of the money on a lavish lifestyle, including buying cars, watches and even a 555-carat black diamond.

Heart’s defense noted that the SEC’s case was positioned as a violation of his constitutional right to free speech. He argued that the SEC’s use of his public speech as a source of SEC offerings could deter speech on the blockchain. However, the SEC dismissed this argument as a sideshow as frivolous as a would-be criminal turning around to argue that he has a right to free speech while he is in the midst of committing the crime against him.

The SEC’s Argument

In response to Heart’s allegations, the SEC said its promotional activities were aimed squarely at US investors. They gave examples of Heart using what Cardle called telepresence to resemble conferences in Las Vegas and recording a podcast in Miami to pitch its projects to a US audience. The SEC further pointed out that a US-based developer was involved in the development of the Heart projects, thereby establishing the SEC’s jurisdiction.

The SEC reiterated other allegations the company had previously made in a complaint filed in July 2023, alleging that Heart used millions of dollars from investors to finance luxury cars and watches, and what has been described as the world’s “largest” black diamond.

Heart’s Defense and Claims of Freedom of Speech

Heart’s defense was also that the SEC was infringing on his free speech rights. He argued that the SEC was seeking to punish him based on his public speech, thereby jeopardizing protected speech on the blockchain. The SEC rejected this defense, arguing that it would be like suggesting that quoting a bank robber violated his rights.

The case involving the SEC’s October allegation that HEX, PLS and PLSX are unregistered securities will continue, with the next hearing scheduled for October 24, 2024.

Even if this lawsuit is ruled in favor of Hinman and the SEC, these legal proceedings could ultimately have significant implications for the legal governance of the crypto market, particularly with regard to the extraterritorial application of U.S. securities laws in transnational settings and the connection to decentralized technologies. There will undoubtedly be a lot of attention from industry actors, regulators, and attorneys; I expect the case will be viewed by many, as it will likely set a baseline for how other similar cases are likely to be managed.

Richard Heart and his lawyers’ response to the SEC’s rebuttal and all the events leading up to the potential hearing in October will likely determine the fate of his projects and perhaps the future of cryptocurrencies in the US.