In a significant legal setback for the decentralized finance (DeFi) sector, Chief U.S. District Judge Reed O'Connor of the Northern District of Texas dismissed a lawsuit on Wednesday filed by crypto developer Michael Lewellen. Lewellen, a fellow at the advocacy group Coin Center, sought a declaratory judgment that his non-custodial Ethereum-based crowdfunding software, Pharos, would not subject him to criminal prosecution under money-transmitting laws.
Lewellen argued that without a court order, he faced up to five years in prison for publishing his software, which is designed to coordinate charitable crowdfunding campaigns. He cited the high-profile prosecutions of Tornado Cash developer Roman Storm and Samourai Wallet developers Keonne Rodriguez and William Lonergan Hill, who were all charged with operating unlicensed money-transmitting businesses. These cases have become focal points for DeFi proponents who argue the prosecutions misunderstand the nature of decentralized software.
Despite receiving supporting briefs from major crypto advocacy groups including the Blockchain Association, DeFi Education Fund, and the Solana Policy Institute, Judge O'Connor found Lewellen's argument "unpersuasive." The judge distinguished Lewellen's case from those of Storm and the Samourai developers, noting that the "core conduct" of those prosecutions was alleged money laundering, whereas Lewellen's conduct would be "running a business." The court concluded Lewellen failed to demonstrate a credible threat of imminent prosecution.
A key point in the dismissal was the court's reference to a April 2025 memo from Deputy Attorney General Todd Blanche. The memo stated prosecutors should not target crypto exchanges, mixers, and "offline wallets" for "the acts of their end users or unwitting violations of regulations." However, Lewellen and his supporters argued this non-binding memo is insufficient. "A non-binding DoJ memo is no substitute for real legal certainty," Lewellen stated on X.
Peter Van Valkenburgh, Executive Director of Coin Center, echoed this sentiment, stating the Blanche memo "has not provided meaningful protection to developers, given the outcomes in the Tornado Cash and Samourai Wallet cases." Both Valkenburgh and Lewellen are now calling for Congress to pass the Blockchain Regulatory Certainty Act of 2026, introduced by Senator Cynthia Lummis in January, which aims to legally clarify that non-custodial software developers are not money transmitters.
The decision arrives as lawmakers race to finalize major crypto legislation ahead of the U.S. election season, when Congressional action typically stalls. Judge O'Connor dismissed the case without prejudice, allowing Lewellen to refile with corrections. "Disappointed to see the court dismiss my suit today," Lewellen wrote. "My lawyers are exploring all options for a path forward."
