A Texas court has thrown out a lawsuit brought by crypto developer Michael Lewellen, who sought a declaratory judgment that his donation-facilitating software, Pharos, would not be subject to prosecution under money transmission laws.
On Wednesday, Chief US District Judge Reed O’Connor dismissed the case, ruling that Lewellen failed to show a credible threat of imminent prosecution.
“Disappointed to see the court dismiss my suit today,” Lewellen said in a post on X.
In its decision, the court also pointed to a Department of Justice memo indicating that authorities will no longer target virtual currency exchanges, mixing and tumbling services, or offline wallets for the actions of their users or for unintentional regulatory violations.
“A non-binding DoJ memo is no substitute for real legal certainty,” Lewellen responded.
The case highlights a growing trend of crypto software developers seeking legal safeguards against potential criminal liability tied to the tools they create.
Lewellen, a fellow at crypto advocacy group Coin Center, which supported the lawsuit, argued in his complaint filed last January that developers of similar tools—such as those behind Tornado Cash and Samourai Wallet—have previously faced prosecution under these laws.
Tornado Cash co-founder Roman Storm was convicted last year of conspiracy to operate an unlicensed money-transmitting business. The founders of the privacy-focused Bitcoin wallet Samourai Wallet were also found guilty on similar charges—cases Lewellen cited to argue that developers like him face a genuine legal risk.
However, Judge O’Connor pushed back, stating that “the core conduct of those cases is money laundering.”
“By contrast, the core conduct here would be running a business. And Lewellen disclaims any knowing transmission of criminal funds, which is central to the prosecutions he invokes,” he wrote.
Case dismissed for now, but not necessarily over
Lewellen said his legal team is considering all possible next steps.
The judge dismissed the case without prejudice, meaning Lewellen is free to refile it with revisions or additional arguments.
Peter Van Valkenburgh, executive director of Coin Center, argued that the Justice Department memo referenced by the court “has not provided meaningful protection to developers,” pointing to the outcomes in the Tornado Cash and Samourai Wallet cases.
Both Van Valkenburgh and Lewellen are now urging Congress to pass the Blockchain Regulatory Certainty Act of 2026.
Introduced in January by Senator Cynthia Lummis, the proposed legislation seeks to clarify that developers and providers of non-custodial software—who do not control user funds—should not be classified as money transmitters under the law.
“So while I hope the court is right that non-custodial software developers are not at real risk, the Blanche memo is not enough to secure their rights. It is a vague enforcement signal, not a durable limit on government power,” Valkenburgh added.
“Worse, the court has now used that vague signal as a reason not to provide actual judicial clarity on the scope of developer liability. Instead of a clear rule, developers get a revocable memo and a court telling them not to worry.”
