US SEC says Hex crypto founder defrauded investors, spent money on ‘Enigma’ diamond

By Jonathan Stempel

NEW YORK (Reuters) -The U.S. Securities and Exchange Commission has charged online entrepreneur Richard Heart with illegally raising more than $1 billion in three unregistered cryptocurrency offerings, and defrauding investors out of $12.1 million to buy luxuries including the world’s largest black diamond.

In a complaint filed on Monday in Brooklyn federal court, the SEC said Heart, also known as Richard Schueler, touted his Hex token, PulseX asset trading platform and PulseChain asset network on YouTube and other websites as pathways to “grandiose wealth.”

The SEC said Heart knew his often “tongue-in-cheek” disclaimers that his offerings were not securities were false, including when he said Hex was capable of 38% annual returns and “built to be the highest appreciating asset that has ever existed in the history of man.”

He was also accused of spending PulseChain investor funds on McLaren and Ferrari sports cars, four Rolex watches costing $3.02 million, and “The Enigma,” a 555-carat black diamond costing 3.16 million British pounds (then $4.28 million) at a Sotheby’s auction in February 2022.

Heart, 43, is a U.S. citizen believed to live in Helsinki, Finland, the SEC said. He could not immediately be reached for comment, and a lawyer for him could not be identified. Hex, PulseX and PulseChain are also defendants.

The lawsuit seeks civil fines and the recouping of gains from alleged wrongdoing that begin in late 2019.

According to the SEC, Hex’s price had by June 30 fallen more than 98% from its peak, while PulseChain and PulseX offerings are now “practically worthless.”

SEC Chair Gary Gensler has tried to rein in a crypto sector that he has said undermines investor trust in U.S. capital markets.

Hex’s website says the token’s long-term goal is to replace credit card and payment companies, certificates of deposit, and gold as a store of value. It also says “Hex is not a scam.”

On his personal website, Heart calls himself a “force for good” who “makes the world a better place,” and posted a nearly 30-minute video of him installing a bidet for his mother.

The case is SEC v Schueler et al, U.S. District Court, Eastern District of New York, No. 23-05749.

(Reporting by Jonathan Stempel and Chris Prentice in New York; Additional reporting by Katharine Jackson and Ismail Shakil; Editing by Will Dunham, Mark Porter and Marguerita Choy)