The U.S. Department of Justice (DOJ) is weighing criminal charges against executives of crypto venture firm Dragonfly amid the ongoing trial of Tornado Cash co-founder Roman Storm for alleged money laundering violations. Prosecutors are scrutinizing internal communications showing Dragonfly's leadership, including General Partner Tom Schmidt and Managing Partner Haseeb Qureshi, actively discussed Know Your Customer (KYC) protocols with Tornado Cash developers after investing in the privacy tool.
Evidence presented in court revealed Dragonfly's early backing of Tornado Cash, with emails indicating developers sought guidance on user verification systems. Schmidt invoked his Fifth Amendment right against self-incrimination and declined to testify, while Qureshi publicly defended the investment as supporting "open-source privacy-preserving technology." Assistant U.S. Attorney Rehn confirmed broader charges are being considered beyond Storm, who stands accused of enabling $7 billion in illicit transactions – including funds tied to North Korean hackers like the Ronin Bridge attackers.
This case marks a significant escalation in regulatory pressure, potentially establishing new liability standards for venture capital firms funding DeFi projects. As noted by journalist Eleanor Terrett, "DOJ's intent to pursue investor liability signals a policy shift" that could reshape compliance expectations across crypto. The outcome may impact Ethereum-based assets due to Tornado Cash's operation on its network, with prosecutors linking the mixer to laundering activities involving 170,000 stolen Ethereum.