DOJ Considering Criminal Charges Against Dragonfly Capital Employees for Years-Old Tornado Cash Investments

NEW YORK — Prosecutors instructed a federal decide in open courtroom on Friday that they had been contemplating criminally charging sure staff of crypto enterprise capital agency Dragonfly Capital, together with basic associate Tom Schmidt, for their 2020 funding into privateness instrument Tornado Cash.

The dialogue between prosecutor Nathan Rehn and District Judge Katherine Polk Failla of the Southern District of New York (SDNY) got here amid a break within the ongoing trial of Tornado Cash developer Roman Storm, who has been charged with conspiracy to commit cash laundering, conspiracy to function an unlicensed cash transmitting enterprise and conspiracy to violate worldwide sanctions for his work with the privateness instrument — costs for which, if discovered responsible, he faces as much as 45 years in jail.

During their case, the prosecution launched a slew of messages between Storm and two Dragonfly Capital companions, Schmidt and managing associate Haseeb Qureshi. In the context of the federal government’s case, the messages appeared to serve a number of functions: to determine correct venue in New York (as a result of Schmidt relies in Manhattan), to point out that Storm and his colleagues profited from Tornado Cash and to point out that they made frequent adjustments to the entrance finish, or consumer interface, of the product.

However, when Storm’s protection workforce raised the potential for asking Schmidt to testify — doubtless to offer context for his and Storm’s messages and to elucidate the agency’s rationale for investing in Tornado Cash — prosecutors declined to grant Schmidt (in addition to doubtlessly one other of the protection’s would-be witnesses) immunity from his testimony getting used towards him in a future prosecution, prompting Schmidt to plead the fifth and decline to testify in Storm’s protection.

“Are you looking at possibly prosecuting everyone at Dragonfly?” Failla requested Rehn on Friday.

“Not everyone, but Schmidt” and another individual, Rehn said, according to Inner City Press.

The government then asked the judge to seal that portion of the transcript of the open-court discussion, which she agreed to do.

Qureshi took to X on Friday to defend his firm’s investment in Tornado Cash, writing:

“We believe deeply in Americans’ right to privacy, and the lack of it remains one of crypto’s largest unsolved problems. We therefore stand by our investment. We did not operate or exercise any control over Tornado Cash, we had no contact with any malicious users, we always encouraged our portfolio companies to follow the law, and we maintain that Tornado Cash itself has a lawful right to exist,” Qureshi wrote. “Charging a venture firm for a portfolio company’s alleged misconduct would be unprecedented, especially under these circumstances.”

Qureshi added that Dragonfly has “fully cooperated” with the federal government’s investigation into Tornado Cash, which he stated started in 2023.

“After all of this time — years later — bringing charges against Dragonfly would be outrageous, contrary to the facts, and would induce a chilling effect onto all investment into crypto and privacy-preserving technologies in America,” Qureshi stated. “We don’t believe the DOJ would actually bring such absurd and groundless charges. But if they do, we intend to vigorously defend ourselves.”