The crypto world is on edge following the recent lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Richard Schueler, known under his pseudonym Richard Heart. The SEC accuses Heart, the creator of HEX, PulseChain, and PulseX, of violating securities laws by offering his projects without registration. Additionally, the SEC claims that Heart used funds intended for project development for personal expenses. This case highlights the increasing controversy over regulation within the decentralized finance (DeFi) world and could have significant implications for the future of the ecosystem.
Live at the Hearing: A Personal Account of the Allegations and Heart’s Defense
On October 31, 2024, the hearing took place in the SEC v Richard Schueler (better known as Richard Heart) case in New York. I was present at this hearing and witnessed the defense and prosecutors defending their positions before a packed room of supporters and onlookers. The sight of a courtroom filled to capacity — with even a second room for additional attendees — underscores the international importance of this case.
The SEC has filed charges against Heart, alleging that the crypto products he developed should be considered securities, that he failed to meet registration requirements, and that he used funds for personal purposes rather than for the development of PulseChain and PulseX. This is not a criminal case, so Heart only faces monetary penalties.
Jurisdiction and Defense
Heart’s lawyers argued that the SEC lacks jurisdiction over Heart or his cryptocurrencies HEX, PulseChain, and PulseX, as Heart has lived outside the U.S. for over twenty years and launched the projects from Finland. The SEC countered that Heart’s appearances on websites and YouTube videos targeted the American audience, but Heart’s team argued that this is insufficient to prove he specifically aimed at U.S. investors.
The judge also questioned the SEC’s “alter ego” theory, which suggests that the crypto products could be seen as extensions of Heart himself. The SEC could not provide a clear basis for this claim.
Timeline and Evidence
A significant part of the defense focused on the timeline of the SEC’s allegations. Heart’s team argued that certain statements Heart made in 2022 could not have influenced prior investments in HEX, as the HEX Adoption Amplifier had closed in 2020. The SEC struggled to explain why Heart’s statements after this period would still be relevant.
Additionally, the SEC referenced Heart’s remarks about the Howey test as evidence he was targeting U.S. investors, but the judge noted that the Howey test itself does not establish jurisdiction.
Fraud Claims
The SEC also alleged that Heart misled investors by failing to disclose that he might have used funds for personal purchases, such as cars and jewelry. Heart’s lawyers pointed out that all transactions are traceable on the blockchain, which complicates the fraud argument. Furthermore, Heart had no legal obligation to disclose fund usage and delivered the promised products.
The SEC based its claim on a small number of U.S. investors (ten), which the judge found remarkable given the international presence in the courtroom.
Chance of Dismissal
Given the SEC’s weak evidence regarding jurisdiction and the lack of solid arguments around fraud and the timeline, there is a chance that the case could be partially dismissed. Over the next few months, the judge will assess each claim to determine if there is enough basis for a trial. While full dismissal is not guaranteed, part of the SEC’s claims may be rejected due to insufficient substantiation and specific technical details around jurisdiction and blockchain transactions.
A ruling within approximately 60 days will clarify which parts of the charges hold.
Conclusion
The case of SEC v Richard Heart once again brings to light the complex legal issues within the DeFi world. The arguments presented by Heart’s legal team underscore the legal challenges of cross-border crypto activities and the difficulty for the SEC in proving these were specifically aimed at U.S. investors. The outcome of this case could set an important precedent for the future of crypto and DeFi in the United States. In the coming months, it will become clear whether the SEC succeeds in pushing some of its charges forward or if the case will largely be dismissed, marking a significant victory for Heart and his projects in the fight over DeFi regulation.
Photo: The photo below shows the attendees in the courtroom, reflecting a broad range of supporters from various countries.
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