Hex founder Richard Heart runs but can’t hide from SEC summons

Disgraced HEX founder Richard Heart has been successfully served with a summons related to a U.S. civil complaint alleging widespread fraud in Heart’s ‘crypto’ scams.

On December 11, the U.S. Securities and Exchange Commission (SEC) informed the U.S. District Court for the Eastern District of New York that it had successfully served its summons with Richard Scheuler, aka Richard Heart, and his “alter-ego entities, Hex, PulseChain, and PulseX” on October 31.

Heart was charged with fraud on July 31 for offering unregistered securities to the public via his utility-free token projects. Heart stands accused of raising over $1 billion from his customers/marks, of which “at least $12 million” was misappropriated by Heart to fund his lavish lifestyle, including highly conspicuous consumption of luxury goods that Heart used to project the image of a successful entrepreneur.

The SEC found it far easier to charge Heart than actually serve its summons at his current residence in Helsinki, Finland. Last month, the SEC informed the court that it was still awaiting confirmation from Finland’s Ministry of Justice that Heart had been served. This uncertainty convinced U.S. Magistrate Judge Peggy Kuo to delay the initial conference in the suit from November 28 to January 30, 2024.

The SEC subsequently informed the court that, despite multiple visits to Heart’s Helsinki home and leaving behind contact requests, plus multiple attempts to contact him via phone calls and text messages, Heart had yet to respond to the Finnish process server’s overtures.

Heart’s apparent willingness to cower under his bed until the Dementors departed led the process server to conclude that the only way to serve Heart was via Substitute Service. This was done by leaving the appropriate paperwork at Heart’s residence and on deposit with the Helsinki Police Station.

While this action ensures forward progress on the civil complaint, it doesn’t offer any assurances regarding Heart’s exact whereabouts. Clearly, he’s in lockdown somewhere and appears to have little interest in showing up in New York to discuss his charges with the court.

Finland has an extradition treaty with the U.S., although it doesn’t cover civil complaints such as the SEC’s suit. However, Heart is a U.S. citizen and Finland does allow for extradition even in the absence of international obligations on a discretionary basis. Assuming that at least some HEX victims reside in Finland, the government may actually see a benefit in shipping Heart’s ass home to face the music.

A heartless scam

Heart’s scam involved promoting the Ethereum-based Hex as a yield farming bonanza. Customers who used their ETH tokens to purchase Heart’s HEX tokens and then staked their HEX on his platform were told they’d eventually receive exorbitant returns in … more HEX tokens.

Heart’s pitch urged users to commit to the longest possible staking periods for the greatest possible rewards, which minimized Heart’s need to actually pay any real-world benefits in the short term. There were significant penalties for early withdrawals and—bizarrely—for not withdrawing your stake within a tight time frame following maturity. (Basically, HEX was like Jasper from The Simpsons detailing all the infractions for which the punishment was a paddlin’.)

Heart never came clean on who controlled Hex’s ‘Flush’ address into which those penalties were paid, although the general presumption was that Heart was the beneficiary. Heart also used this Flush address to cycle ETH tokens in and out of the Hex ecosystem to give the appearance that new investors were buying into Heart’s vision. The SEC complaint alleges that this recycling constituted up to 97% of the total value committed in the HEX presale between 2019 and 2020.

While the SEC was prepping its complaint, Heart was the subject of a WTF documentary called The Highest of Stakes (see the trailer here and read some of the pre-collapse comments to get a sense of the gullibility of some ‘Hexicans’ and why this sector is filled with scammers eager to shear these credulous sheep).

Tweeting on the run

Despite Heart’s fugitive status, he continues to tweet from his personal account, primarily to continue flogging his scam projects, while blocking people from replying to his public utterances. It’s almost as if he expects to come through this with his reputation intact, ready to flog his next sheep-shearing project, and doesn’t want fresh marks reading any angry denunciations.

This one-way conversation included Heart’s December 1 tweet celebrating Hex’s fourth birthday and its “perfect, flawless operation” during that span. While the Hex operation may continue to function, the fiat value of the HEX token remains down around 82% from a year ago. The PLS token related to Heart’s affiliated PulseChain scam is down 83% following its long-delayed launch this spring.

Heart also tweeted his response to last month’s $4.3 billion settlement between the U.S. Department of Justice (DOJ) and Binance founder Changpeng ‘CZ’ Zhao. Heart added CZ’s name to the ”really long” list of “people in jail or bankrupt that didn’t like Richard Heart or the things he founded.” The list includes FTX’s Sam Bankman-Fried, Celsius Network’s Alex Mashinsky, Terraform Labs’ Do Kwon, and Three Arrows Capital’s (3AC) Su Zhu.

While Heart has yet to join the above rogues’ gallery in facing criminal charges for his scamming ways, that doesn’t mean there isn’t a sealed indictment and/or an Interpol Red Notice with his name on it, just waiting until he waddles through an international airport dragging his usual armfuls of fugly Gucci swag behind him.

For Wright’s critics, all roads lead to ruin

Heart isn’t wrong when he claims that the common thread linking CZ, SBF, and the rest is that they’re all people who didn’t like him and/or his projects. Many of them also share an antagonism towards Bitcoin’s founding father Dr. Craig Wright, with Heart being one of Wright’s loudest (in both voice and fashion) critics.

Heart’s entrée into the digital asset sector’s wider public consciousness came at a November 2019 blockchain conference in Malta, where Wright was giving a presentation. When Wright opened the floor to questions, Heart began mocking Wright’s authority while making sure that cameras were catching this performance.

Heart’s online channels used this footage to promote the launch of HEX the following month. Several years and many more stolen millions later, Heart is on the run from the authorities, his Ponzi scheme in ruins, while Wright is still hard at work, devising new use cases for blockchain technology and filing patents. Choose your fighter.

CZ was another fierce Wright critic, and CZ is now $4.3 billion poorer and looking at some serious jail time when he’s sentenced in February for earning transaction fees off terrorists and child pornographers. Other Wright antagonists have been the subjects of similar legal complaints.

That list may someday include Ethereum founder Vitalik Buterin, whose self-interested criticism of Wright was routinely celebrated by Heart. And yet it was Buterin’s invention that led to the launch of so many scams, including the deeply harmful initial coin offering (ICO) crime spree of 2017-18, the endless rug-pulls of so-called decentralized autonomous organizations (DAOs) and, yes, Heart’s own predatory scams. Given that Ethereum has never lived up to its early ‘world computer’ hype, Buterin has a lot to answer for.

Wright was targeted by all these shysters because his vision involved a blockchain that allowed people and enterprises to accomplish things beyond gambling in the crypto casino. Wright was a threat to their predatory business model, so he had to be taken down a peg. But as time goes by, one by one, it’s his critics that are being brought down. Again, choose your fighter.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum,
FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.