Lawyers in the Fort Worth Office of the U.S. Securities and Exchange Commission have charged an internet marketing guru turned cryptocurrency network founder with securities fraud and using $12.1 million of investor funds to buy a Ferrari Roma sports car, a Rolex Daytona Eye of the Tiger watch and a 555-carat black diamond called “The Enigma.”
The 27-page lawsuit, filed Monday by SEC trial attorney Matthew Gulde of Fort Worth, accuses Richard Schueler and three crypto companies he created — Hex, PulseChain and PulseX — of illegally conducting securities offerings that raised more than $1 billion during the past three years and misappropriating some of the funds for his personal luxury purchases.
Gulde is a University of Texas School of Law graduate and a former federal prosecutor who has been with the SEC’s Fort Worth office more than 10 years.
The SEC complaint states that Schueler, who also goes by the alias Richard Heart, created the three companies described as crypto asset security platforms and promised investors huge returns by claiming that Hex was the first high-yield blockchain certificate of deposit.
“Heart continually touted these investments as a pathway to grandiose wealth for investors, claiming that Hex, for example, ‘was built to be the highest appreciating asset that has ever existed in the history of man,’” the SEC states in its lawsuit, which was filed in the U.S. District Court in the Eastern District of New York.
“Although Heart claimed these investments were for the vague purpose of supporting free speech, he did not disclose that he used millions of dollars of PulseChain investor funds to buy luxury goods for himself,” the complaint alleges.
The SEC complaint states that Schueler, who is 43, was born in Florida but currently lives in Finland. Schueler claims to have created several internet startup companies that employ 150 people and had $60 million in annual sales.
“Heart called on investors to buy crypto asset securities in offerings that he failed to register. He then defrauded those investors by spending some of their crypto assets on exorbitant luxury goods,” said Eric Werner, director of the Fort Worth Regional Office. “This action seeks to protect the investing public and hold Heart accountable for his actions.”
The SEC filed the lawsuit in the Eastern District of New York because an investor and the crypto exchange Uniswap are based there.
Toby Galloway, a shareholder at Winstead and former lead trial lawyer for the SEC, said the “scheme alleged by the SEC is brazen.”
“According to the SEC, Heart promoted the crypto offerings extensively on YouTube and frequently made tongue-in-cheek claims that the investments were not securities,” Galloway said. “At the same time, according to the complaint, Heart acknowledged that his promises of vast wealth for the investors depended on Heart’s own entrepreneurial efforts, a key factor in the Howey test for determining whether the assets were investment contracts and therefore securities subject to SEC regulation.”
“The complaint also criticizes a staking feature for Hex tokens that Heart allegedly claimed would secure 38 percent returns,” Galloway said. “And the Commission alleges that Heart tried to evade the securities laws by telling investors to “sacrifice” the crypto assets instead of investing them.”
Legal counsel for the defendants has not been identified.
Besides Gulde and Werner, other SEC lawyers working on the matter include Jaime Marinaro, Derek Kleinmann and Sarah S. Mallett of the Fort Worth regional office. Jorge G. Tenreiro and David Hirsch of the SEC’s Crypto Assets and Cyber Unit also have been involved.