Upholding its role as the financial watchdog, the U.S. Securities and Exchange Commission (SEC) recently raised pressing charges against Richard Heart, the enthusiastic backer of a trifecta of projects: Hex, PulseChain and PulseX. With their tokens plummeted by 50% post-launch, the whiff of suspicious activity and the potential whiff of mendacity caught the attention of the SEC.
Heart’s venture is doused with accusations of fraud, starkly differing from SEC’s case with Ripple Labs, where the primary concern orbits only around securities violations. We may be looking down the barrel of potentially many more charges from the U.S. Department of Justice, following in the daunting steps of Terra’s founder, Do Kwon.
A disconcerting claim stemmed from the SEC is Heart’s alleged recycling of investment funds during the Hex’s inception phase, an event that occurred between 2019-2020. A platform allegedly engaged in this practice was the so-called “Hex Flush Address” which simultaneously acted both as receiving node for fees from Hex users and a storage address for investment funds during the presale.
It is claimed that Heart funnelled funds from this Hex Flush Address to a centralized exchange and, after a series of transactions meant to obscure their origin, channelled it back disguised as new investors’ contributions to the Hex Contract Address. Consequently, this disingenuous strategy resulted in the Hex project securing significantly less investment than it initially appeared to have garnered.
This controversial recycling trick, accused of consisting up to 97% of the money sent to the contract address, inflated the initial investment, making the sale seem more successful and attracting more unsuspecting victims. But in reality, the HEX presale managed to pull in only around $34 million real investment funds, a far cry from the advertised $678 million worth of ETH.
But there’s more to the story. It appears that Heart pulled the wool over the eyes of his own investors with an entirely fictitious HEX “staking” program that did nothing more than incentivise the holders to keep their HEX tokens off the market and drive up the token’s price.
In a repeated lucrative pattern, he seemingly exploited the naïve. Real proof-of-stake blockchain requires staking an amount of tokens to become a block validator, an exercise demanding technical skill and substantial work. However, ‘staking’ with Hex’s program yielded high returns for investors who locked up their HEX for an extended period, all the while without securing anything.
Additionally, HEX stakers found themselves in dire straits as the program’s advertised returns weren’t drawn from fee revenue generated on the chain. Tellingly, this issue shares a common ground with Do Kwon’s Terra chain, which also promised inflated returns via the Anchor Protocol.
HEX’s turbulent roller-coaster journey underlines the pitfalls of financial models heavily reliant on leverage, lockups and personality cults. When glitzy appearances seem suspicious, it might be because of murkier developments unfolding behind the scenes.
Lastly, Richard Heart was very vocal about his mission statement – to create an asset that only escalates in price. However, in the words of a former Hex investor, a token with no utility serves no demand and is destined to plummet in due course.
This is a salient wake-up call for all who seek easy wealth and obsess over price rather than critically assess the underlying technology or financial models of their investment targets. Unfortunately, investors who joined post-initial HEX presale are grappling with the grim reality of substantial losses, a harsh consequence of short-sighted investment strategies.
Source: Coindesk
