A federal court in Texas has dismissed a lawsuit brought by crypto developer Michael Lewellen, who had sought a declaratory judgment confirming that his software, Pharos, would not be prosecuted under money-transmission laws. Chief US District Judge Reed O’Connor issued the dismissal on Wednesday, ruling that Lewellen had not demonstrated a credible threat of imminent prosecution. Pharos is designed to facilitate donations to charitable crowdfunding campaigns. Lewellen, reacting on social media platform X, said he was disappointed by the court’s decision.
In its ruling, the court also referenced a Department of Justice memo stating that the agency would no longer pursue virtual currency exchanges, mixing and tumbling services, or offline wallets for the actions of their end users or for unintentional regulatory violations. Lewellen pushed back on the weight given to that document, arguing that a non-binding memo cannot substitute for genuine legal certainty. His lawyers are currently exploring all available options for a path forward. The case was dismissed without prejudice, leaving open the possibility of refiling with certain corrections or modifications.
Lewellen, a fellow at crypto advocacy organization Coin Center, which supported the lawsuit, filed his legal complaint in January of last year. He argued that developers of software comparable to Pharos had already faced prosecution under money-transmission statutes. He pointed specifically to the cases involving Tornado Cash and Samourai Wallet as evidence of a genuine legal threat facing software developers in the crypto space.
Tornado Cash co-founder Roman Storm was convicted last year on charges of conspiracy to operate an unlicensed money-transmitting business. The co-founders of privacy-focused Bitcoin wallet Samourai Wallet were found guilty on the same charge. Lewellen cited both outcomes as precedents that placed developers like himself at real legal risk. Judge O’Connor, however, drew a distinction between those cases and Lewellen’s situation, noting that the core conduct in the prior prosecutions involved money laundering rather than simply running a business.
Judge O’Connor further noted that Lewellen explicitly disclaimed any knowing transmission of criminal funds, which the judge identified as a central element in the prosecutions Lewellen had referenced. This distinction, in the court’s view, undermined the argument that Lewellen faced a comparable threat of prosecution. The judge’s reasoning separated the nature of Pharos’s operations from the conduct at issue in the Tornado Cash and Samourai Wallet cases.
Peter Van Valkenburgh, executive director at Coin Center, responded to the ruling by arguing that the DOJ memo cited by the judge had not delivered meaningful protection to developers, given the outcomes already seen in those high-profile cases. Both Van Valkenburgh and Lewellen have called on Congress to pass the Blockchain Regulatory Certainty Act of 2026, introduced by Senator Cynthia Lummis in January. The proposed legislation aims to clarify that developers and providers of non-custodial software who do not control user funds are not subject to money transmitter laws.
Van Valkenburgh described the DOJ memo as a vague enforcement signal rather than a durable limit on government power, arguing it falls short of securing the rights of non-custodial software developers. He expressed hope that the court’s reasoning would prove correct in practice, but maintained that legislative action remains necessary. The push for the Blockchain Regulatory Certainty Act reflects a broader effort by crypto developers to obtain clearer legal protections for the software they build and distribute.
Originally reported by CoinTelegraph.
