A U.S. court in Texas has dismissed a lawsuit filed by crypto developer Michael Lewellen, who was seeking legal clarity for his blockchain-based software. The case was thrown out by Reed O’Connor, who ruled that Lewellen failed to show a credible and imminent threat of prosecution.
Lewellen had asked the court to confirm that his Ethereum-based tool, Pharos, designed for charitable crowdfunding, would not violate money transmission laws. Reacting to the decision, he expressed disappointment, arguing that developers are still left without real legal certainty.
“A non-binding DoJ memo is no substitute for real legal certainty.”
In an X post, Lewellen maintained that his software does not control user funds and simply acts as a neutral tool, similar to an envelope used to send checks. Based on this, he argued it should not be regulated like services such as Western Union or Venmo.
His position was backed by major crypto advocacy groups, who warned that unclear legal definitions could stifle innovation across decentralized finance.
Court Relies on DOJ Memo, Critics Push Back
However, in its decision, the court leaned on a U.S. Department of Justice memo suggesting prosecutors would avoid targeting crypto platforms for users’ actions or unintended violations.
However, critics were quick to challenge this reasoning. Crypto analyst and critic, Peter Van Valkenburgh, argued that such memos are not legally binding and can be revised or revoked at any time. He stressed that they do not offer real protection to developers.
Lewellen shared a similar concern, stating that a non-binding memo cannot replace clear legal rules. Critics say the court effectively used a temporary policy as justification to avoid providing lasting judicial clarity.
Past Cases Raise Concerns
Skepticism also stems from recent enforcement actions. Developers linked to Tornado Cash and Samourai Wallet faced prosecution and prison sentences for operating unlicensed money transmitting businesses.
Although Judge O’Connor distinguished those cases, highlighting their alleged links to money laundering, critics argue the outcomes show that developers still face real risks despite policy signals from regulators.
Industry Reaction: “Missed Opportunity”
The ruling has drawn strong reactions from across the crypto space. Policy voices like Jonathan Schmalfeld called the decision a “hugely disappointing result,” arguing that if current guidance were truly protective, ongoing cases like that of Roman Storm would not exist.
“Whether through market structure or elsewhere, developer protections MUST be codified into law.”
Many believe the court missed a key opportunity to define the legal boundaries for developers, leaving them in uncertainty.
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FAQs
Developers may still face investigations or charges if authorities interpret their software as enabling financial activity, even without direct control of funds.
Independent developers, startups, and open-source contributors are most exposed, as they lack resources to handle legal uncertainty or enforcement risks.
Future cases may revisit similar issues, or lawmakers could introduce clearer legislation to define when crypto software qualifies as money transmission.
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