Richard Heart, Founder of HEX and PulseChain Crypto Projects, Wins Rare Legal Victory Against the SEC

In a rare legal defeat for the U.S. Securities and Exchange Commission, the agency has formally dropped its fraud case against Richard Schueler

The U.S. Securities and Exchange Commission has formally dropped its fraud case against Richard Schueler, also known as Richard Heart, founder of the crypto projects HEX, PulseChain, and PulseX.

The agency is shutting down the case after a rare legal defeat.

Earlier this year, a federal judge dismissed the SEC’s initial complaint and declined to amend it further, as requested by the regulator.

The Eastern District Court of New York was notified by the SEC on April 21 that it would not amend its complaint, effectively closing the case.

“That brings the case to an end with a complete victory for Mr. Heart,” said David Kirk, partner at Kirk & Ingram LLP, who represented the HEX founder.

“To my knowledge, this is the only SEC enforcement action against a participant in the cryptocurrency industry that was dismissed in its entirety by a federal judge.”

The court had previously dismissed the SEC’s initial complaint in February, citing a lack of jurisdiction.

Judge Carol Bagley Amon noted that Heart’s activities were not clearly targeted at U.S. investors, which is crucial for the SEC to establish its authority in crypto cases.

“This is a victory for open-source software, cryptocurrency, and free speech. The SEC actually sued software code itself in this case, claiming it could be an alter ego of a person,” Heart posted on X.

“This would have set a terrible precedent and caused perhaps multiple billions of dollars of damage to the vital open source and free software industry that powers most of the Internet and your speech on it.”

After the initial dismissal, the regulator was granted an opportunity to amend the complaint and adjust its arguments. However, despite an extension, the SEC did not amend the complaint by the extended deadline of April 21.

The SEC had originally filed suit in July 2023, accusing Heart of raising over $1 billion through unregistered securities offerings with his crypto projects.

The agency also alleged that Heart’s actions in shutting down the projects’ Discord servers to U.S. members demonstrated an attempt to evade the regulator’s jurisdiction.

In its lawsuit, the SEC claimed that Heart’s actions caused "substantial financial and reputational harm to U.S. investors."

However, Judge Amon ruled that the SEC failed to establish how Heart’s actions, mainly focused on promoting his projects to a global audience online, directly targeted U.S. investors.

Amon also said that shutting down the Discord servers’ access to U.S. members was a response to the SEC’s claims that it lacked jurisdiction over the projects’ operations.

“After the Commission filed suit, Defendants moved to dismiss for lack of subject-matter jurisdiction. The court granted the motion, finding that the Commission failed to sufficiently allege that Defendants’ actions were directed at the United States,” Amon said in her February ruling.

“In its broadest reading, the Commission’s theory of jurisdiction is that any activity that implicates U.S. persons in a cryptocurrency offering, wherever in the world that activity occurs, is sufficient to establish jurisdiction in the United States.”

But the judge added that such a broad interpretation would create problems in defining the boundaries of U.S. jurisdiction.

“Accepting such a broad view of personal jurisdiction over cryptocurrency offerings would create anomalies and pour into the legal landscape an untidiness not easily contained,” Amon said.