Crypto Securities Violations Land Richard Heart In Hot Water

The US Securities Exchange Commission (SEC) has accused Richard Heart of conducting unregistered securities offerings through his Hex, PulseChain, and PulseX blockchains. Initial reports suggested that Heart evaded the legal complaint, but a recent filing by the SEC confirmed that he was ultimately served in Finland.

Despite filing the initial court complaint in July, serving Heart with legal documents proved challenging amid rumors that he intentionally avoided contact with the securities agency. However, the SEC provided an update on December 11th, stating that Heart was served under Finnish law and the rules governing civil and commercial matters under the Hague Convention on October 31st through Substitute Service.

Understanding the case

Substitute service involves delivering the defendant a copy of the complaint where personal service is not possible. This could involve leaving a copy of the complaint at the property of the defendant or via email, allowing the legal process to continue even if the defendant deliberately avoids personal service.

An SEC exhibit supporting the December 11th filing outlined multiple unsuccessful attempts to deliver personal service, including leaving a contact request form on two occasions and receiving no response to phone and text messages. Under substitute service, the court documents were left at a nearby police station, with Heart informed of the location of the documents.

With the court papers considered served, the case against Heart can move forward. The SEC alleges that Heart committed fraud by marketing Hex, PulseChain, and PulseX as profit-generating investments without proper disclosures or securities registration, raising over $1 billion through the offerings.

Caution must be exercised

The complaint includes various issues, such as Hex being touted as capable of providing investors with a 10,000x return on their investment, the use of investor funds to create fake volume, and the misappropriation of $12 million for luxury items like expensive watches and cars. The SEC is seeking disgorgement of ill-gotten gains, civil penalties, and permanent injunctions against Heart and his companies, preventing further violations of securities laws.

This case holds significance as even if founders believe their crypto projects are not securities and are fully decentralized, the economic realities determining investor profit may still categorize them as securities under US law.