The U.S. District Court for the Northern District of Texas dismissed a lawsuit filed by cryptocurrency developer Michael Lewellen, who sought legal clarity on whether creators of non-custodial software face prosecution for operating unlicensed money transmission services.
Lewellen’s case centered on Pharos, a platform designed for crypto-asset donations that does not hold users’ funds. Pharos allows donors to contribute to charitable or crowdfunding campaigns through Ethereum-based smart contracts. Lewellen implemented assurance contracts to automatically return funds if projects do not reach full funding, alongside privacy features that prevent donor identities from being publicly visible.
In January 2025, Lewellen filed the suit against the U.S. Department of Justice. He argued that the DOJ’s ongoing prosecutions of software developers, including Roman Storm of Tornado Cash and Keonne Rodriguez of Samourai Wallet, violated the First and Fifth Amendments by creating a chilling effect on lawful software publication.
“Essentially, they [the U.S. Department of Justice] argue that simply providing other people with software tools that let them move their own money on their own behalf is, in itself, money transmission and requires registration with the government,” Coin Center, where Lewellen works, explained.
Court ruling cites DOJ memo and lack of imminent threat
Chief U.S. District Judge Reed O’Connor dismissed the lawsuit, stating that Lewellen had not shown a credible threat of prosecution. The ruling referenced an April 8, 2025, DOJ memorandum that said mixers, crypto exchanges, and wallets will no longer face prosecution for unwitting regulatory violations or end-user actions.
“By contrast, the core conduct here would be running a business,” Judge O’Connor wrote, noting that Lewellen denied knowingly transmitting criminal funds, a central issue in previous cases against Tornado Cash and Samourai Wallet developers.
Lewellen reacted to the dismissal on X, writing,
“Disappointed to see the court dismiss my suit today. A non-binding DoJ memo is no substitute for real legal certainty.”
Disappointed to see the court dismiss my suit today. A non-binding DoJ memo is no substitute for real legal certainty.
— Michael Lewellen (@LewellenMichael) March 25, 2026
My lawyers are exploring all options for a path forward. Huge thanks to the @coincenter team for their incredible support and expertise through this.
We need… https://t.co/uXJqGww7IO
The case was dismissed without prejudice, leaving Lewellen the option to refile after adjusting his claims.
Developers push for legislative clarity
Coin Center and supporters argue that the DOJ memo does not provide durable protections. Executive Director Peter Van Valkenburgh said on X,
“The Blanche memo is not enough to secure their rights. It is a vague enforcement signal, not a durable limit on government power.”
Lewellen and Coin Center advocate for the Blockchain Regulatory Certainty Act (BRCA), introduced in January 2026 by Senator Cynthia Lummis. The legislation would explicitly exempt non-custodial software developers who do not control user funds from money transmitter laws, providing clearer legal certainty than the current reliance on DOJ memos.
The lawsuit highlighted previous prosecutions to illustrate risk. Roman Storm, co-developer of Tornado Cash, was found guilty on one count of operating an unlicensed money transmission business, while the DOJ seeks a retrial and a longer sentence. Samourai Wallet developers also faced criminal liability despite the software merely providing infrastructure for user transactions.
Pharos and the broader crypto ecosystem
Pharos represents an effort to expand privacy-oriented crowdfunding within the crypto ecosystem without holding user funds. Lewellen’s legal challenge aimed to shield projects like Pharos from prosecution that could otherwise deter innovation in non-custodial software.
Despite the court’s dismissal, Lewellen’s legal team continues to review potential next steps. The ruling highlights the need for legislative action to create lasting protections for developers, rather than leaving the status of non-custodial crypto software dependent on non-binding government memoranda.
Gunel Ismayilova
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