A Texas federal court has dismissed a lawsuit by crypto developer Michael Lewellen seeking a declaratory judgment that his donation-facilitating software, Pharos, does not violate money-transmission laws.
Chief U.S. District Judge Reed O’Connor dismissed the case, finding Lewellen failed to show a credible threat of imminent prosecution. The court relied in part on a Department of Justice memo stating the DOJ will no longer target virtual currency exchanges, mixing and tumbling services, or offline wallets for the acts of their end users or for unwitting regulatory violations. Lewellen said on X he was “disappointed” by the dismissal and called the memo “no substitute for real legal certainty.”
Lewellen, a fellow at advocacy group Coin Center which supported the suit, had argued developers face real legal risk because creators of similar software—such as Tornado Cash and Samourai Wallet—have been prosecuted. Tornado Cash co‑founder Roman Storm was convicted last year of conspiracy to operate an unlicensed money‑transmitting business, and the Samourai Wallet co‑founders were found guilty on similar charges. Lewellen pointed to those cases as evidence of a threat to developers of non‑custodial tools.
Judge O’Connor distinguished those prosecutions, saying their “core conduct” involved money laundering, whereas Lewellen’s alleged core conduct would be running a business. The judge noted Lewellen disclaimed any knowing transmission of criminal funds, a central element in the prosecutions he cited.
The case was dismissed without prejudice, allowing Lewellen to refile after addressing the court’s concerns. Lewellen’s lawyers said they are exploring options.
Peter Van Valkenburgh, executive director at Coin Center, criticized the reliance on the DOJ memo, saying it “has not provided meaningful protection to developers” given the outcomes in Tornado Cash and Samourai Wallet cases. Both he and Lewellen have urged Congress to pass the Blockchain Regulatory Certainty Act of 2026, introduced by Senator Cynthia Lummis, which would clarify that developers and providers of non‑custodial software who do not control user funds are not subject to money‑transmitter laws.
Valkenburgh added that the memo is a “vague enforcement signal, not a durable limit on government power,” and expressed concern the court used that signal to decline providing judicial clarity: “Instead of a clear rule, developers get a revocable memo and a court telling them not to worry.”