The US Securities and Exchange Commission has firmly rejected Richard Heart’s attempt to throw out the $1 billion securities case against him. Richard Heart, the mastermind behind HEX, PulseChain, and PulseX, contended that the SEC had no authority over him, primarily due to his non-US residency and asserted the SEC did not show that any securities transactions had happened domestically or that there were acts of fraudulent performances.
More elaborately, the SEC responded the focus was on U.S. investors for the projects that Heart had in mind—the SEC noted that Heart sought to actively market his projects to the U. S. audiences on various platforms, such as virtual conferences and podcasts hosted in the United States.
Also, the SEC accuses Heart of having an American developer who got involved in developing the projects it has embarked on, which the SEC says gives it jurisdiction in this case.
That lawsuit was filed in July 2023; Heart allegedly violated the securities law and accepted more than $1 billion from unregistered securities sales connected with HEX, PulseChain, and PulseX, and the SEC claimed that Heart spent part of the money on a luxurious lifestyle, including purchasing automobiles, watches, and even a 555-carat black diamond.
Heart’s defense noted that the SEC’s case was positioned as violating his constitutional right to freedom of speech. He said that the SEC’s use of his public speeches as a source of SEC offerings could deter speech on blockchain. The SEC, however, rejected this argument as an afterthought as frivolous as a would-be-criminal turning around to argue that he has a right to free speech while engaged in the crime being committed against him.
SEC’s Argument
In response to Heart’s claims, the SEC said that his promotional activities were precisely aimed at the U. S. investors. They provided examples where, exhibiting what Cardle called telepresence, Heart appeared to attend conferences in Las Vegas and recorded a Miami-based podcast to pitch his projects to a U. S. audience. Further, the SEC pointed out that a U.S.-based developer had some involvement in developing the Heart projects, hence setting the jurisdiction of the SEC.
The SEC repeated other claims it initially made in a complaint filed in July 2023, stating that Heart used millions of dollars of investors’ money to finance such vices as luxury cars and watches and what is described as the world’s ‘largest’ black diamond.
Heart’s Defense and Free Speech Claims
Heart’s defense also was that the SEC was trespassing on his freedom of speech. He argued that the SEC sought to sanction him based on his public utterances, putting protected speech on the blockchain in peril. The SEC disallowed this defense, arguing that it would be the same as suggesting that quoting a bank robber would violate his rights.
The case that concerns the claim made by the SEC in October that HEX, PLS, and PLSX are unregistered securities will proceed; the next hearing session will be held on October 24, 2024.
Even if this lawsuit is resolved in favor of Hinman and the SEC, these legal proceedings may eventually have significant consequences for the legal governance of the cryptocurrency market, particularly as it relates to the extraterritorial application of U.S. securities laws in transnational settings and connection with decentralized technologies. There is bound to be lots of focus by the actors in the industry, the regulators, and lawyers; I anticipate that the case will be looked at by many as it will likely provide a basis for how other similar cases will likely be managed.
Richard Heart and his attorneys’ reaction to the rebuttal of the SEC and all the events before the possible October hearing are likely to decide the fate of his projects and perhaps decisively shape the future of cryptocurrencies in the U.S.
