Federal Judge Dismisses SEC Lawsuit Against HEX Founder

In a notable win for the crypto sector, a U.S. federal judge dismissed the SEC’s enforcement action against Richard Heart (founder of the HEX, PulseChain, and PulseX projects). The lawsuit, filed in July 2023, alleged that Mr. Heart raised more than US$1 billion via unregistered offerings and misappropriated at least US$12.1 million of investor funds for his own benefit.

On February 28, 2025, U.S. District Judge Carol Bagley Amon (Eastern District of New York) dismissed the case, concluding that the SEC failed to demonstrate sufficient U.S. jurisdiction over Heart’s alleged actions.

Specifically, the court found:

• The online statements and promotional materials targeted a global audience, not the U.S. market.

• The complaint did not show that transactions occurred with U.S.-based investors through U.S. exchanges or wallets.

• The alleged misappropriation occurred via digital wallets and crypto platforms outside the U.S. and lacked any clear U.S. tie.

The dismissal marks a rare instance in which the SEC’s enforcement campaign in the crypto-asset space was rebuffed entirely.

LEGAL & REGULATORY ANALYSIS

1. Jurisdictional Hurdles & “Targeting” U.S. Investors
Under U.S. securities law (notably the Securities Act of 1933 and Securities Exchange Act of 1934), the SEC must show that securities offerings were directed to U.S. investors or otherwise had significant domestic connections. In Heart’s case, the court found the promotional materials globally accessible and not specifically targeted at U.S. persons.

This highlights a key defense in crypto enforcement: if the issuer’s outreach and operations are global and not explicitly U.S.-focussed, the SEC’s ability to exert jurisdiction may weaken.

2. Unregistered Offerings & Securities Characterization
The SEC’s original complaint alleged that HEX, PulseChain, and PulseX constituted unregistered securities (via tokens, “staking” returns, and yield promises).

However, because the court dismissed on jurisdictional grounds, it did not rule on whether the tokens were actually securities. Instead, the ruling means the SEC must decide whether to appeal, refile with stronger U.S. nexus evidence, or abandon the matter.

3. Fraud / Misappropriation Claims
The complaint claimed Heart misused investor funds to purchase luxury items and that a portion of the proceeds was diverted. The court found the SEC did not sufficiently tie those acts to U.S.-based transactions or U.S. wallets.

From a legal perspective, even compelling allegations of fraud must be connected to U.S. law and territory to give the SEC standing.

4. Implications for Crypto Enforcement Strategy
This decision may moderate momentum in the SEC’s crypto enforcement playbook. It suggests that for large crypto-asset cases involving overseas operations or global offerings, the question of where and to whom tokens were offered is as crucial as the substance of the offering itself.

It may also encourage international token issuers to structure offerings in ways that minimize U.S. exposure, though this raises reputational and regulatory risk in other jurisdictions.

KEY TAKEAWAYS

• Issuers & Token Projects: When structuring offerings, ensure documentation clearly addresses jurisdiction, investor residency, wallet location, and marketing geography. A lack of U.S. nexus may provide a defense, but strong compliance begins with proper registration or exemption review.

• Advisors & Counsel: Legal advisors should emphasize the need for jurisdictional mapping (who is offered, where funds originate, where wallets are located). It’s insufficient to rely solely on global-access tokens as a shield.

• Investors: Even where tokens may appear unregistered or risky, the ability of regulators to act depends on proof of U.S. nexus. Due diligence should include jurisdictional footprints, not just token economics.

• Regulation: The ruling signals limits to the SEC’s reach and suggests future enforcement may require stronger facts of U.S. connection or partnerships with foreign regulators.

The Heart case is significant not because it resolves the core issue of how crypto tokens should be regulated, but because it underscores jurisdiction as a gatekeeper. Though the SEC’s allegations were serious — unregistered offerings, fraud, luxury-asset purchases — the court’s ruling turned on the ability to tie those actions to the U.S. legal regime.

For now, issuers outside the U.S. or globally oriented may view the decision as a legal victory. But it should not be interpreted as a carte-blanche for non-compliance. The SEC retains other tools and may appeal or adjust its strategy. For stakeholders in the crypto space, jurisdictional design and registration strategy remain paramount.

This case serves as a crucial reminder: enforcing U.S. securities law in the digital-asset space remains highly fact-specific, and each case is unique. Preparation, documentation, and architectural clarity are key.