DOJ Crypto Prosecution Challenge Tests Developer Protections
Michael Lewellen has filed a reply brief in the US Fifth Circuit, challenging the Department of Justice’s interpretation of 18 U.S.C. § 1960. Lewellen says the DOJ’s broad reading could expose him to prosecution for publishing and operating Pharos, a non-custodial cryptocurrency software project designed to support crowdfunding.
The case is a pre-enforcement challenge. Lewellen argues that he should not have to wait for an investigation or prosecution before seeking clarity on whether publishing non-custodial software constitutes operating an unlicensed money-transmitting business. He says the DOJ has not disavowed prosecution and that a policy memo from former Deputy Attorney General Todd Blanche only sets enforcement priorities. It does not change the law and could be revised at any time.
Lewellen also cites the DOJ’s prosecutions of Tornado Cash and Samourai Wallet developers as evidence of a credible enforcement risk. He argues that these cases conflict with 2019 FinCEN guidance, which generally distinguishes software development from money transmission when developers do not control users’ funds.
The failure of Congress to pass the Blockchain Regulatory Certainty Act has increased the importance of court decisions. Coin Center says existing legislative proposals may not have fully protected developers from criminal liability under Section 1960. The Fifth Circuit’s decision could therefore affect legal certainty for non-custodial crypto software developers and the wider US crypto innovation sector.
Neutral
The news is neutral for crypto markets because it concerns a legal challenge and does not immediately change regulation, network operations, token supply, or institutional flows. A favorable ruling for Lewellen could be long-term bullish for the US crypto sector by improving legal certainty for non-custodial developers and reducing perceived enforcement risk. This could support innovation, venture activity and the development of privacy and decentralised-finance tools.
In the short term, however, the case is unlikely to create a significant trading catalyst. The Fifth Circuit has not issued a final ruling, and the DOJ’s position remains contested. Traders may continue to apply a regulatory-risk discount to privacy-focused projects, particularly those associated with Tornado Cash or similar software. Past enforcement actions against Tornado Cash and Samourai Wallet have shown that legal headlines can increase volatility and pressure related tokens, even when the underlying technology remains operational.
A court decision limiting the DOJ’s interpretation of Section 1960 could produce a positive regulatory signal for crypto developers in the longer term. Conversely, a ruling allowing the case to be dismissed would preserve uncertainty and could weigh on privacy- and decentralisation-focused projects. Until the court provides a substantive decision, broader market indicators such as Bitcoin liquidity, risk appetite and US regulatory policy are likely to remain more important than this case.