A federal court in Texas has dismissed a lawsuit filed by cryptocurrency developer Michael Lewellen, who sought legal clarity on whether creators of non-custodial software could be prosecuted under U.S. money transmission laws. The ruling, issued by Chief Judge Reed O'Connor of the U.S. District Court for the Northern District of Texas, leaves a critical legal question unresolved for the blockchain industry.
The court granted the government's motion to dismiss the case without prejudice, meaning Lewellen could refile if the threat of prosecution becomes more immediate. Judge O'Connor found that Lewellen had not demonstrated a "substantial threat of prosecution," deeming his concerns too speculative. The judge distinguished Lewellen's case from prior criminal prosecutions, noting those involved allegations of money laundering, not merely the operation of software for lawful purposes.
Lewellen developed a tool called Pharos, designed to facilitate cryptocurrency donations to charitable crowdfunding campaigns. He argued the software was non-custodial, meaning he never holds or controls user funds, and that complying with money transmitter registration would be impossible due to the software's privacy features. He sought a declaration that his planned conduct was lawful and an injunction against enforcement.
The court referenced a U.S. Department of Justice memo titled "Ending Regulation By Prosecution" in its dismissal order. This memo directs prosecutors not to pursue cases against crypto services solely for user conduct or unknowing regulatory violations. However, critics, including Coin Center's Peter Van Valkenburgh, argue this memo does not provide lasting legal protection.
The case drew support from major industry groups like the Blockchain Association, Crypto Council for Innovation, and DeFi Education Fund, which filed amicus briefs arguing for clearer legal boundaries for software developers. Following the dismissal, Lewellen expressed disappointment on social media and called for Congress to advance the Blockchain Regulatory Certainty Act, a bill that would explicitly exclude non-custodial blockchain developers from money transmitter classification.
This ruling arrives amidst ongoing legal actions against crypto privacy tools, including the cases against Tornado Cash developer Roman Storm and the founders of Samourai Wallet, who pleaded guilty in 2025. The dismissal perpetuates legal uncertainty for developers building non-custodial infrastructure, pushing the debate back to Congress and future litigation.
