Compliance August 1, 2023

Florida Man Buys Massive Black Diamond with Ill-Gotten Crypto Gains, SEC Says

The SEC alleges that Richard Heart offered unregistered cryptocurrency and spent investor assets on personal luxury goods.

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The Securities and Exchange Commission has charged Richard Schueler, who often used the alias Richard Heart, with securities fraud and offering unregistered securities.

Starting in December 2019, Heart allegedly sold over $1 billion in Hex crypto tokens and misappropriated $12 million in investor funds to purchase luxury goods, such as cars, watches, and the largest cut black diamond on earth for $4.28 million. The Hex tokens were not registered with the SEC, according to the complaint, and were offered over the PulseChain and PulseX platforms.

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Heart is an American citizen who was born in Florida but currently resides in Helsinki, Finland, according to the SEC.

Heart told investors in a series of YouTube livestreams that Hex was an easy way to get rich saying “if you want to get rich, [Hex is] built for that,” according to the complaint.

Heart had a so-called “staking” scheme in which owners of Hex would “lock up” their tokens, or deposit them and waive their right to withdraw them for a period of one day to 15 years. This scheme would reduce the circulation of Hex and, according to Heart, drive up the price, so investors “could earn an average of 38% annual return in the form of additional Hex tokens.”

The Department of Labor allows for recordkeepers and plan sponsors to offer crypto currencies as an option in defined contribution retirement plans. But in a March 2022 notice it did advise using “extreme care” when adding the digital offerings to a retirement plan investment menu.

The July 31 SEC complaint argued that Hex is a security, as opposed to a commodity, and falls under the criteria of the Howey test: “Each of the Hex, PulseChain, and PulseX offerings involved investments of money in common enterprises with the reasonable expectation of profits to be derived based on the efforts of others.”

It has been the view of the SEC and its current chairman, Gary Gensler, that bitcoin is not a security, in part because it is not a “common enterprise” or an investment contract, because of its decentralized character. This complaint describes in detail, by way of explaining the staking scheme, that Hex is a security because it is a common enterprise with a reasonable expectation of profit, two prongs of the Howey test, and therefore under the jurisdiction of the SEC.

The complaint seeks to ban Heart from offering crypto securities, confiscate the alleged illegally acquired gains, and impose civil penalties.

Gensler has been highlighting his desire to bring the crypto field into compliance during his tenure and has described the industry as “rife with fraud and scams and hucksters.”

The case is SEC v Schueler et al, U.S. District Court, Eastern District of New York, No. 23-05749. Schueler does not yet have representation and could not be reached for comment.

In Practice August 1, 2023

Carson Group Starts Beta Testing for New Financial Wellness Program

The wealth manager plans to join other big RIAs in serving participants with its own financial wellness program, according to its head of wealth solutions.

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Recent mergers and acquisitions have seen some traditional wealth management firms bring workplace retirement plan capabilities in-house. Now another of the country’s largest registered investment advisories is looking to add its own financial wellness program to serve retirement plan participants.

Jamie Hopkins

Carson Group Holdings LLC, which earlier this year took an equity stake in workplace and wealth adviser Northwest Capital Management Inc., is currently beta testing a financial wellness program to serve plan participants, according to Jamie Hopkins, Carson’s managing partner of wealth solutions. The service would add to the RIA’s push into retirement plan advisement capabilities that also includes a recent partnership with small 401(k) plan provider Vestwell.

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Through its recent dealmaking, Omaha, Nebraska-based Carson can now assist clients with all sizes of workplace retirement plans, Hopkins says, but as its network of advisers is consistently asking for additional holistic financial planning services, the firm is working on a more robust financial wellness program.

“Our next phase [of retirement plan focus] is participant experience,” Jamie Hopkins says. “We’re spending the next 18 months or so on that.”

Hopkins says the firm is currently working with clients on participant education and retirement readiness, but it is also focused on establishing a full-scale program available to its advisers.

“I think the area of participant education is key for the future,” Hopkins says. “How do we start delivering this base level of financial planning and retirement readiness to participants?”

The RIA will be joining other large wealth managers who have financial wellness offerings, including Edelman Financial Engines, which launched an in-house program last year, and retirement and wealth aggregator CAPTRUST Financial Advisors.

Meanwhile, numerous financial wellness vendors provide participant services for the adviser community. Last week, a female-founded firm called Pocketnest Inc. rolled out a financial wellness platform for independent financial advisers, and Financial Finesse Ventures recently announced an investment in OfColor Inc., a minority-owned financial wellness platform “unapologetically focused on the financial empowerment of employees of color.”

Having the ability to serve the needs of everyday retirement plan savers is key to the Carson Group’s overall financial planning mission, Hopkins says. The goal of the program is not, he says, to “pull through” retirement plan participants into the wealth management side of the business, but rather to have a program for participants who are not a good fit for individual advisement.

“Most of our business in wealth management from the Carson perspective comes from the business owner, and we help them set up a plan,” he says. “That’s really our core: delivering that service.”

Regardless of the wealth management link, Hopkins still sees the qualified plan space on its own as a good business.

“There is fee compression there, there is a lot of liability … but it’s still a good business,” he says. “We’re helping people save for retirement. We’re providing education and services. That just goes back to the core of who Carson is: We want to be the most trusted in financial advice.”

In addition to participant education, Hopkins says he sees room for advancement in the investment and technology side of retirement planning. He recently joined the board of Income Labs, a retirement income management firm with participant offerings such as a retirement stress test, a one-page interactive of a person’s financial life and tax-planning software.

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