- The court dismissed the case, citing no real or immediate risk of prosecution.
- Developers sought clarity on the legality of non-custodial crypto software.
- DOJ memo cited, but critics say it offers no lasting legal protection.
A federal court in Texas has dismissed a lawsuit filed by a crypto developer seeking legal clarity on non-custodial software. The ruling leaves key questions unresolved, as developers continue to face uncertainty over whether building such tools could trigger prosecution under U.S. money transmission laws.
Texas Court Dismisses Crypto Developer Lawsuit
A federal court in Texas dismissed a case brought by developer Michael Lewellen. Lewellen built a piece of software called Pharos, a non-custodial tool designed to help users make cryptocurrency donations to charitable crowdfunding campaigns. Non-custodial means he never holds or controls anyone’s funds. The software simply facilitates the transaction.
Despite this, Lewellen was afraid to launch his business. He worried that the Department of Justice could prosecute him under federal money transmission laws, the same laws used against other crypto developers in recent years.
So he went to court first, asking a judge to confirm that what he was doing was legal before he even started. He also made clear he had “no intent to transport or transmit criminal funds” using his software.
Why the Court Said No
U.S. Chief District Judge Reed O’Connor dismissed the case on March 25, ruling that Lewellen had not shown a real or imminent threat of prosecution. The court found that the ongoing DOJ cases Lewellen pointed to were not comparable to his situation, noting that the “core conduct” of those cases was money laundering, while Lewellen’s core conduct would simply be “running a business.”
The court also leaned on a DOJ memorandum titled “Ending Regulation By Prosecution,” which formally stated the department would not pursue actions against virtual currency services for “unwitting violations of regulations” by their end users. In the court’s view, that was enough reassurance to dismiss the case.
Why Developers Are Still Worried
Lewellen and his supporters were not satisfied. He said on X: “A non-binding DOJ memo is no substitute for real legal certainty. My lawyers are exploring all options for a path forward.”
Coin Center’s Peter Van Valkenburgh echoed that frustration. A DOJ memo is not law. It can be reversed, revised, or simply ignored by a future administration. It also did nothing to protect the developers behind Tornado Cash or Samourai Wallet, both of whom faced serious prosecution.
Both Lewellen and Van Valkenburgh are calling on Congress to pass the BRCA, which would formally clarify that developers of non-custodial software are not money transmitters and cannot face felony charges simply for publishing privacy tools.
Related: Bitget Launches “UEX Switch” Campaign to Unify Crypto and Traditional Markets
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