Roman Storm, co-founder of non-custodial crypto mixer Tornado Cash, was found guilty of conspiracy to operate an unlicensed money-transmitting business, yesterday in New York.
Decentralized finance (DeFi) advocates are concerned that the guilty verdict on this charge could set a precedent for developers of other DeFi protocols, regardless of the fact that funds aren’t under the teams’ control.
A “deadlocked” jury was unable to come to unanimous decisions on two other charges facing Storm, related to violating sanctions and money laundering.
The money-transmitting charge carries a maximum sentence of five years, much lower than the 20 years for both of the other charges.
However, voices from across the DeFi sector argue that the charge on which Storm was found guilty, also known as the “1960 charge,” could have ramifications reaching far beyond the Tornado Cash case.
Crypto lawyer Jake Chervinsky, who works with advocacy organizations DeFi Education Fund and Blockchain Association, said yesterday’s result was “a sad day for DeFi.”
He underlines the distinction between custodial platforms, such as centralized exchanges, and DeFi protocols such as Tornado Cash, arguing “Section 1960 should not apply to the developer of a non-custodial protocol who lacks control of user funds.”
Michelle Korver of a16z also warned that the “decision could have a wide-ranging and unintended impact on the blockchain ecosystem as a whole” and “jeopardizes [the current administration’s] push to place the United States at the forefront of crypto innovation.”
Storm himself appeared relieved by the result, telling journalist Eleanor Terret, outside the courtroom, “It’s a big win. The 1960 charge is bullshit and we’re going to fight it all the way.”
Many believe Storm stands a good chance on appeal, especially given the fact that FinCEN’s own guidance of 2019 clearly states “an anonymizing software provider is not a money transmitter.”
The guidance elaborates that “those persons providing ‘the delivery, communication, or network access services used by a money transmitter to support money transmission services’ are “exempt from the definition of money transmitter.”
This definition was hotly debated pre-trial, with Judge Katherine Polk Failla eventually ruling that control of money is not a prerequisite for operating a money transmitter.
Read more: Judge rules crypto protocols can be money transmitters without control
Korver underlines that yesterday’s guilty verdict on the 1960 charge “was driven by the court’s pre-trial legal interpretation, not jury fact-finding.”
Roman Storm’s case wasn’t the only one affected by Failla’s ruling last year, however.
Last week, the trial of Samourai Wallet developers Keonne Rodriquez and William Lonergan Hill wrapped up with a guilty plea on the same money-transmitting charge, part of a deal in which prosecutors dropped an additional money laundering charge.
The precedent set by the Samourai result may lend extra weight to the decision against Storm, and make for a trickier appeal.
Via a complaint filed in January, DeFi developer and Coin Centre fellow Michal Lewellen is currently suing the Department of Justice for a declaratory judgement over the classification of non-custodial protocols as money transmitters, comparing such tools to “an envelope used to move checks in the mail.”
Peter Van Valkenburgh, Coin Center’s executive director, has vowed that the organization will support Storm’s appeal and “do everything to make sure the judge gets the law right the next time around.”
