Crypto Developer Michael Lewellen Sues DOJ For Regulatory Overreach

Blockchain developer Michael Lewellen has filed a lawsuit against the US Department of Justice, accusing the agency of criminalizing crypto development through an overly broad interpretation of federal money transmission laws.

The lawsuit, filed on Thursday, aims to prevent prosecution of its decentralized crowdfunding platform Pharos, which it claims operates outside the scope of these regulations.

Built on Ethereum, Pharos uses “insurance contracts,” using smart contracts to hold funds and automatically reimburse donors if funding targets are not met.

The lawsuit describes the platform as non-custodial, meaning Lewellen does not own or control user funds.

Lewellen claims that the DOJ’s interpretation of 18 USC §1960 (Prohibition on Illegal Money Sending Companies) incorrectly classifies software developers who are not subject to the custodial obligation as unlicensed money transmitters.

The DOJ position “betrays[s] its own representations to the public by criminally prosecuting people who publish non-custodial cryptocurrency software,” the lawsuit reads.

“The laws against unlicensed money transfers are intended to regulate intermediaries in the sensitive sector of transferring customers’ money, not technologists who create tools that allow users to transfer money themselves,” the spokesperson said. submit states.

Neither Lewellen nor the DOJ have responded Decode request for comment.

The DOJ’s broad interpretation of money transmission laws threatens the ability to build freely,” Lewellen said tweeted. “This isn’t just about Pharos; it’s about the future of cryptocurrency innovation in America.”

The lawsuit highlights constitutional concerns, noting that the DOJ’s actions violate the First Amendment by criminalizing the publication of software code, and the Fifth Amendment by enforcing laws in a vague and arbitrary manner.

As Attorney General Merrick Garland prepares to leave his post, his successor will inherit the case. The new attorney general, former Florida Attorney General Pam Bondi underwent a confirmation hearing in the Senate on Wednesday.

Storm and Rodriguez cases at the center of legal arguments

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

In 2023, Storm, along with Roman Semenov, faced charges related to operating Tornado Cash, a crypto mixer accused of facilitating money laundering and violating sanctions laws.

While Semenov is still not in custody, Storm was arrested and is facing trial in New York.

In April 2024, federal authorities arrested Rodriguez and Hill, alleging that their non-custodial Bitcoin wallet platform, Samourai Wallet, served as a tool for illegal transactions.

Prosecutors allege the wallet facilitated more than $2 billion in suspicious transfers, including more than $100 million linked to illegal marketplaces on the dark web.

Lewellen’s lawsuit builds on these examples and suggests that such prosecutions criminalize the development of privacy-preserving tools rather than targeting those directly involved in illegal activities.