Despite a recent setback in the Ripple/XRP decision, the Securities and Exchange Commission (SEC) has not slowed its efforts to regulate blockchain companies. On July 31, 2023, the SEC filed a lawsuit alleging that Richard Heart (aka Richard Schueler) conducted unregistered offerings of crypto asset securities that raised more than $1 billion in crypto assets. The SEC also charged Heart and PulseChain with fraud in connection with misuing some of the investment funds on luxury goods such as sports cars, watches and a 555-carat black diamond known as "The Enigma."

There are some interesting twists to the terminology used by Mr. Heart. According to the complaint, Heart began marketing Hex in 2018, claiming it was the first high-yield “blockchain certificate of deposit.” Between December 2019 through November 2020, Hex allegedly collected more than 2.3 million Ethereum (ETH), including through so-called “recycling” transactions that enabled Heart to surreptitiously gain control of more Hex tokens. Also at issue was the "staking" feature for the Hex tokens, which Heart promised would return 38%. These "staking" features are ubiquitous in newer cryptocurrency technologies. Although, cases on the treatment of that feature as a security remain sparse, expect there to be many new cases soon.

The complaint also alleges that, between July 2021 and March 2022, Heart orchestrated two additional unregistered crypto asset security offerings. These offerings were intended to support development of a supposed crypto asset network, PulseChain, and a claimed crypto asset trading platform, PulseX, through the offerings of their native tokens. In another example of the language wars being waged in these technologies, Heart allegedly called on investors to “sacrifice” (instead of “invest”) their crypto assets in exchange for PulseChain and PulseX tokens.

The final kicker was that the complaint details some of the exorbitant personal goods fraudulently obtained by Heart, including cars and exotic diamonds.

The complaint, which was filed in U.S. District Court for the Eastern District of New York, seeks injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, penalties, and other equitable relief.