A U.S. District Court for the Northern District of Texas has dismissed a lawsuit filed by crypto software developer Michael Lewellen, who sought a preemptive ruling that his planned non-custodial crypto donation platform would not run afoul of federal money transmission laws. The court granted the government’s motion to dismiss in an opinion issued Wednesday. The decision leaves a significant legal question unanswered for the broader cryptocurrency industry.
Lewellen had planned to launch Pharos, a software product intended to facilitate cryptocurrency donations to charitable crowdfunding campaigns. He argued that because the platform was non-custodial — meaning it does not hold user funds — he should not be required to register as a money transmitter under federal law. Rather than rule on that substantive question, the court found that Lewellen lacked standing to bring the case.
The judge determined that Lewellen had not demonstrated a credible or imminent threat of prosecution under federal laws governing unlicensed money-transmitting businesses. The ruling pointed to recent Justice Department guidance indicating that authorities would not pursue enforcement actions against crypto businesses for end users’ conduct or for inadvertent regulatory violations. That guidance was seen as undermining Lewellen’s claim that he faced a genuine risk of prosecution.
Responding to the ruling on X, Lewellen expressed frustration with the outcome. “A non-binding DoJ memo is no substitute for real legal certainty,” he wrote, adding that his lawyers are exploring all available options for a path forward. Because the case was dismissed without prejudice, he retains the ability to refile the challenge should circumstances change, such as if regulators take action against comparable software providers.
The case attracted amicus support from several prominent crypto industry organizations, including the Blockchain Association, Paradigm, the DeFi Education Fund, and the Uniswap Foundation. Their involvement reflects widespread concern within the industry that developers of non-custodial software could face liability under financial regulations originally designed for intermediaries that hold and transfer customer funds. Courts and regulators continue to wrestle with how existing financial laws apply to decentralized software and blockchain-based services.
The dismissal arrives against the backdrop of another closely watched legal proceeding involving Tornado Cash developer Roman Storm. Federal prosecutors are seeking a retrial of Storm on two conspiracy counts that carry a combined maximum sentence of 40 years, with the Justice Department proposing an October retrial date. That case is expected to help clarify whether developers of privacy-focused crypto software can be held liable under money transmission and money laundering statutes.
Together, the two proceedings underscore the unresolved tension between existing financial regulations and the rapidly evolving landscape of decentralized software development. Until courts or legislators provide clearer guidance, developers of non-custodial tools remain in a state of legal uncertainty regarding their obligations and potential exposure under federal law.
Originally reported by Decrypt.
