SEC Files $198M Crypto Fraud Charges, Drops $1B Case
2min read The US Securities and Exchange Commission (SEC) has taken significant steps in its enforcement actions against crypto fraud, filing new charges against a scam operator while simultaneously closing a high-profile case. This dual action marks the SEC’s first major enforcement update under the leadership of newly appointed SEC Chair Paul Atkins, highlighting the agency’s evolving strategy in the face of changing crypto policies.
The SEC announced on April 22 that it had initiated enforcement action against Ramil Palafox, the founder of PGI Global. Palafox is accused of orchestrating a $198 million fraud involving cryptocurrencies and foreign exchange trading. According to the SEC, Palafox defrauded global investors between January 2020 and October 2021 by promoting PGI Global as a crypto asset and forex trading firm. He promised high returns on “membership packages” and rewarded participants who referred others, creating a multi-level marketing scheme.
The complaint reveals that over $57 million in investor funds were misappropriated for personal luxuries, including the purchase of Lamborghinis. The remaining funds were used to sustain the illusion of returns in a Ponzi-style payout system, which ultimately collapsed in 2021. Laura D’Allaird, head of the SEC’s Cyber and Emerging Technologies Unit, noted that Palafox exploited investor trust using the crypto narrative. She emphasized that his claims of a proprietary AI-powered trading system were a façade for what was ultimately an international securities fraud.
The SEC is seeking permanent injunctions, a ban on Palafox from future involvement in securities or crypto-related marketing schemes, and the return of misused funds with interest and civil penalties. This aggressive prosecution underscores the SEC’s commitment to protecting investors from fraudulent activities in the crypto space.
In a contrasting move, the SEC officially dropped its lawsuit against Richard Schueler, also known as Richard Heart, the founder of Hex, PulseChain, and PulseX. Heart announced the development via X (formerly Twitter), celebrating what he described as a sweeping legal win. According to Heart, the SEC’s dismissal of the case represents a significant victory for the crypto community, as it marks the first instance where the SEC lost and crypto won across the board, with a dismissal in court of every single claim the SEC brought.
Heart framed the dismissal as a defense of open-source development and free speech, stating that the SEC’s attempt to sue software code could have caused long-term damage to the crypto and tech sectors. He emphasized that the SEC’s lawsuit against software code itself could have set a terrible precedent, potentially causing billions of dollars of damage to the vital open-source and free software industry that powers most of the Internet and online speech.
The SEC’s July 2023 case against Heart accused him of raising over $1 billion through unregistered securities offerings. It also alleged that he misused investor funds for lavish purchases, including expensive watches and cars, while touting his project tokens as paths to wealth. The dismissal of the case against Heart highlights the SEC’s shifting strategy in its approach to crypto enforcement, balancing aggressive prosecution with the recognition of the complexities and nuances within the crypto industry.
