Federal investigation into Dragonfly's involvement with Tornado Cash concludes, coinciding with the imminent conclusion of Roman Storm's trial.
Roman Storm, co-founder of the cryptocurrency mixer Tornado Cash, is currently standing trial in New York on federal charges related to money laundering, sanctions violations, and operating an unlicensed money-transmitting business. The charges stem from allegations that Tornado Cash facilitated over $1 billion in illicit crypto transfers, including those linked to North Korea’s Lazarus Group.
However, the U.S. Treasury Department dropped the economic sanctions against Tornado Cash itself in March 2025 and formally ended its sanctions lawsuit in July 2025, with the appeals court vacating the sanctions case. Despite this, the Department of Justice continues to pursue Roman Storm’s individual criminal prosecution.
The Legal Battle
The case is significant for open-source developers because the key legal question is whether creating and maintaining decentralized, open-source software like Tornado Cash constitutes protected speech under the First Amendment or whether such developers can be held criminally liable for illicit use of their code. Storm’s defense argues that Tornado Cash is a decentralized protocol beyond his control and that the code is protected free speech, analogous to encryption software. Prosecutors contend that Storm knowingly facilitated illicit activity and sanctions violations through his involvement.
Dragonfly's Involvement
Dragonfly, a venture capital firm, had invested in Tornado Cash after receiving outside legal clearance. However, accusations arose that the DOJ's mention of charges was intended to prevent testimony, leading to a clarification during a July 28 court session that Dragonfly Ventures and its executives are not targets in the Tornado Cash investigation. Haseeb Qureshi, managing partner at Dragonfly, stated that the DOJ had officially ruled out charges against the firm.
The Impact
The outcome of Storm’s case may establish a precedent in developer liability under criminal law. The decision may redefine the laws governing software distribution and digital privacy software, potentially impacting how open-source developers are treated under criminal liability laws related to cryptocurrency laundering and sanctions compliance. The case is drawing close attention from developers and investors in the crypto and open-source software communities as it nears its end.
If convicted, Roman Storm could face up to 45 years in prison. Meanwhile, he is still crowdfunding to pay rising legal fees. The trial sets a critical precedent for how the law addresses developer liability for decentralized protocols, potentially impacting innovation and legal risk in the crypto and open-source software communities.
[1] Tornado Cash Wiki [2] CoinDesk [3] Bloomberg [4] The New York Times
- Due to their investment in Tornado Cash, Dragonfly, a venture capital firm, has become involved in the legal battle, with Haseeb Qureshi, the managing partner, stating that the DOJ has ruled out charges against the firm.
- The crypto community is closely watching the trial of Roman Storm, co-founder of Tornado Cash, as the outcome could set a precedent in developer liability under criminal law, potentially affecting the innovation and legal risk associated with decentralized protocols in the cryptocurrency and open-source software communities.
