In brief
- The DOJ has “backtracked” over its plan to bring charges against Dragonfly Capital in its Tornado Cash investigation, according to the firm’s co-founder Haseeb Qureshi.
- Qureshi called the original threat “unprecedented” and a violation of DOJ policy designed to prevent defense testimony.
- A Chainalysis witness also invoked Fifth Amendment protections after prosecutor contact.
The U.S. Department of Justice has pulled back from pursuing charges against venture firm Dragonfly for its early investment in crypto mixer Tornado Cash, according to a statement from the firm’s co-founder, Haseeb Qureshi.
“The DOJ has now backtracked,” Qureshi tweeted Tuesday. “They have stated on the record in the trial Monday morning that the media reports that they were planning to bring charges against Dragonfly were inaccurate, and neither Dragonfly nor any of its principals are targets in their investigation.”
The news comes just days after a federal prosecutor said in court Friday that charges against Dragonfly Capital Partners’ Tom Schmidt and others were under consideration, comments Qureshi slammed as “not only unprecedented” but a “clear violation of DOJ policy.”
The statement came during the criminal trial of Roman Storm, a Tornado Cash co-founder facing conspiracy and sanctions charges that carry a maximum sentence of 45 years.
Storm and his team developed the Ethereum-based crypto mixer that obscures transaction origins. Prosecutors allege that Tornado Cash was used by criminals, including North Korean hackers, to launder stolen funds.
Dragonfly’s Tornado Cash investment
Dragonfly had invested in the Tornado Cash development team in August 2020, believing in what Qureshi called “the importance of open-source privacy-preserving technology.”
The firm obtained outside legal counsel confirming that Tornado Cash complied with existing regulations before investing.
When Storm’s defense team sought to call Schmidt as a witness to provide context for the investment and internal communications, prosecutors declined to grant immunity, prompting Schmidt to invoke his Fifth Amendment rights and refuse to testify.
It was during this Friday court proceeding that prosecutors first indicated they were contemplating charges against Dragonfly personnel.
“They are never allowed to speculate on prosecuting a third party in open court in front of the media,” Qureshi tweeted. “The prosecutors did this to prevent us from testifying for the defense.”
A Chainalysis witness also invoked Fifth Amendment protections after prosecutors contacted the firm, with the defense suggesting potential criminal exposure since Chainalysis operated a Tornado Cash relayer that prosecutors have characterized as part of the alleged conspiracy, The Rage reported.
As the Storm trial nears closing arguments, the outcome is expected to set significant precedent on whether open-source developers and their backers can be prosecuted, days after the founders of Bitcoin mixer Samourai Wallet pleaded guilty to similar charges.
Storm and Tornado Cash co-founder Roman Semenov were charged in 2023 with operating an unlicensed money-transmitting business and violating sanctions after the Treasury Department added Tornado Cash to its sanctions list in 2022.
A third co-founder, Alexey Pertsev, was separately convicted in the Netherlands.
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