Blockchain developer sues DOJ alleging crypto development is under attack

Michael Lewellen, a blockchain developer, has sued the U.S. Department of Justice, alleging the agency was overly broadening its analysis of federal money transmission laws and criminalizing crypto development.

The lawsuit, filed Thursday, aims to block the prosecution of his decentralized crowdfunding platform, Pharos. He says the platform falls beyond these regulations.

Built on Ethereum, Pharos uses “assurance contracts,” which are smart contracts that hold funds and automatically refund donors if funding targets are not fulfilled.

The lawsuit states that the platform is “non–custodial,” meaning Lewellen does not hold or control user funds as described in the lawsuit.

Lewellen says the DOJ’s interpretation of 18 U.S.C. §1960 “Prohibition of illegal money transmitting businesses” incorrectly targets non-custodial software developers as unlicensed money transmitters.

The lawsuit calls the DOJ’s stance a betrayal of “its own representations to the public by criminally prosecuting people who publish noncustodial cryptocurrency software.”

The filing says those laws against unlicensed money transmission have nothing to do with “technologists who create tools that allow users to move money themselves.”

DOJ is violating First and Fifth Amendments as per the lawsuit

The lawsuit argues that the DOJ’s conduct violates the First Amendment by criminalizing the publishing of software code, as well as the Fifth Amendment, by enforcing laws based on no discernible standards.

The case will fall to Attorney General Merrick Garland’s successor, as he is preparing to resign. On Wednesday, former Florida Attorney General Pam Bondi, who is set to become the incoming Attorney General, underwent a Senate confirmation hearing.

Today, I’m taking a stand against the Biden administration’s unjust crackdown on crypto development. I’ve filed a lawsuit against the DOJ to challenge their flawed and unjust interpretation of the law.

My work on Pharos—a non-custodial protocol for public goods…

— Michael Lewellen (@LewellenMichael) January 16, 2025

Lewellen mentions in an X post that the DOJ’s broad approach to money transmission laws threatens the ability to build freely. He adds, “This isn’t just about Pharos; it’s about the future of cryptocurrency innovation in America.”

The case also cites the high-profile cases of Samourai Wallet co-founders Keonne Rodriguez and William Lonergan Hill and Tornado Cash developer Roman Storm as proof of a troubling expansion of federal authority over non-custodial crypto tools.

Storm was among those charged in 2023 with Roman Semenov on the crypto mixer Tornado Cash, which was accused of money laundering and violating sanctions laws.

Storm was arrested and is facing trial in New York, but Semenov remains out of custody.

Federal authorities also arrested Rodriguez and Hill in April 2024 for claiming that their non-custody Bitcoin wallet application, Samourai Wallet, was used for unauthorized transactions.

Prosecutors claim the wallet contained more than $2 billion in suspicious transfers, more than $100 million of which are associated with the illicit marketplaces on the dark web.

Lewellen’s lawsuit stands on these references, arguing that these types of prosecutions essentially criminalize the creation of privacy-oriented tools rather than the users that use these tools for criminal purposes.

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