Introduction
This article is based on the full transcript of the hearing between the Securities and Exchange Commission (SEC) and Richard Heart, founder of the blockchain projects HEX, PulseChain, and PulseX. On October 31, 2024, this pivotal hearing took place, with Heart accused of illegally offering unregistered securities and committing fraud. Through a detailed examination of the case proceedings and arguments presented by both parties, the strengths and weaknesses of each side’s case become apparent. This article highlights the core points of the defense and analyzes how Richard Heart’s legal team challenges the SEC’s allegations.
Jurisdiction: Targeting of Activities
One central issue in this case is the jurisdiction of the U.S. court. To prosecute Richard Heart in the United States, the SEC must prove that his activities specifically targeted the U.S. public. Heart’s defense, led by Michael Liftik and David Kirk, emphasized that HEX, PulseChain, and PulseX are accessible globally without being directly targeted at the U.S. Heart developed his projects as open-source blockchain software, without specific promotion or targeted advertising in the U.S.
The defense further argued that the internet is inherently global, and making information available online does not equate to targeting a U.S. audience. This interpretation is supported by past legal rulings, which have found that general online accessibility does not satisfy the requirement for specific jurisdiction targeting.
SEC’s Weak Point: The SEC has not convincingly demonstrated that Heart’s activities specifically targeted the U.S., nor has it shown intentional targeting of American investors. This underscores a significant weakness in the SEC’s argument: it cannot rely solely on the global availability of the projects as evidence of intentional U.S. targeting. The lack of direct marketing or sales efforts aimed specifically at the U.S. weakens the case for personal jurisdiction.
The Timeline of Allegations: Inaccurate Reference to “Offering Periods”
Another key aspect of Heart’s defense was the clear distinction between the time period of the alleged “offerings” and subsequent promotional activities. The defense argued that the initial HEX offering ended in 2019, while promotional activities for PulseChain and PulseX occurred long afterward. For example, the Hex Conference in March 2022, cited by the SEC, took place over a year after the official launch of HEX and, therefore, cannot be considered promotion for the original offering.
The SEC attempted to show that Heart actively promoted the value of his projects to attract new investments. However, the defense countered that there is no concrete evidence these promotions were intended to solicit investments during the initial offering periods. Heart’s involvement in later events, such as the Hex Conference and Pulse Con in September 2022, was aimed at community engagement and updates rather than soliciting new investments.
SEC’s Weak Point: The SEC attempts to use post-offering activities as evidence of promotion but fails to directly link these actions to the original offering period. The claim that later promotional activities suggest a continuation of the offering is speculative and lacks evidence of Heart soliciting new fundraising efforts.
Fraud Allegations: Transparency and the Concept of “Sacrifice”
The SEC accuses Heart of fraud, claiming he made misleading statements about the use of funds received during the “sacrifice events” for PulseChain and PulseX. However, the defense clarified that Heart was transparent about the nature of these sacrifices, repeatedly emphasizing that participants should not expect profits or returns. Heart explained that these contributions symbolized support for freedom of speech and blockchain technology.
Heart consistently communicated that participation in these sacrifices was voluntary, with no promise of financial gain. He likened the sacrifices to political statements rather than investment opportunities, where the purpose was to support blockchain and free speech principles rather than to generate a guaranteed return.
SEC’s Weak Point: The SEC struggled to substantiate its claim that Heart misrepresented the nature of contributions as investments. Given Heart’s clear communication regarding the sacrifices as voluntary contributions with no promise of return, the SEC’s core argument of deception appears weak.
Personal Use of Funds and Judicial Perspective
The SEC’s allegations also focus on Heart’s alleged use of “sacrifice” funds for personal expenses, including luxury purchases. Heart’s defense argued that he never imposed any specific obligations on the funds received and consistently informed participants to have no expectations regarding their use. Heart explicitly stated these contributions were voluntary and without conditions.
During the hearing, the judge noted that Heart was under no legal obligation to specify fund usage. Since Heart had informed participants not to expect returns, he had the right to use the funds at his discretion, further weakening the SEC’s accusations.
SEC’s Weak Point: The SEC has not demonstrated that Heart breached any obligation regarding fund usage, as there was no promise regarding specific spending. Luxury purchases made without specific restrictions do not, by themselves, constitute fraud.
Commingling of Funds and Use of Mixers
Another point of contention is Heart’s use of mixers, which increase transaction anonymity on the blockchain by breaking and combining amounts, complicating the traceability of funds.
The defense emphasized that using mixers on the blockchain is not unusual and that all transactions remain publicly visible. Heart’s lawyers argued that anonymity is fundamental to blockchain technology. The SEC’s position assumes anonymity itself is suspicious without showing evidence of actual deception.
SEC’s Weak Point: The SEC has not presented clear evidence of fraud through the use of mixers. Since all transactions are public on the blockchain, the SEC’s reliance on Heart’s use of mixers alone is insufficient to prove fraud.
Conclusion: A Possible “Christmas Gift” for Heart and His Supporters
Following the hearing, the SEC’s case against Richard Heart appears weak. The SEC’s attempts to prove that Heart’s activities targeted the United States are unconvincing. Additionally, Heart’s transparency regarding the nature of sacrifices makes the fraud allegations appear baseless. Accusations of personal enrichment and mixer use are not adequately supported and rely on assumptions.
The judge acknowledged that Heart had no legal obligation to dedicate the sacrifice funds solely to PulseChain or PulseX development, confirming his freedom to use them as he saw fit. This position further bolsters Heart’s defense.
In cases like this, rulings are often issued within 60 to 90 days. Given the SEC’s weak substantiation and Heart’s strong defense, a ruling could be delivered by Christmas, offering a potential “Christmas gift” to Heart’s supporters. If the judge sides with the defense, Heart and his followers could see a substantial victory, with significant implications for the future of blockchain projects that operate globally without a primary focus on the U.S.
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