A US federal court in Texas has dismissed a lawsuit filed by crypto developer Michael Lewellen, who sought legal clarity on whether his software could be treated as a money transmitter under existing laws. The case, centered around his project Pharos, was dismissed after the court found no immediate risk of prosecution.
The decision highlights ongoing uncertainty for crypto developers building non-custodial software tools in the United States.
COURT RULES NO IMMINENT THREAT OF PROSECUTION
Chief US District Judge Reed O’Connor dismissed the case on Wednesday, stating that Lewellen had not shown a credible or immediate threat that authorities would take action against him.
Lewellen had asked the court for a declaratory judgment confirming that his software, Pharos, would not be prosecuted under money-transmission laws. The platform is designed to facilitate donations for charitable crowdfunding campaigns.
Following the ruling, Lewellen expressed disappointment, noting that a lack of legal clarity continues to create challenges for developers in the crypto space.
Source: Peter Van Valkenburgh
DOJ MEMO CITED BUT QUESTIONS REMAIN
In its decision, the court referenced a Department of Justice (DoJ) memo indicating that authorities would not target virtual currency platforms, mixing services, or offline wallets for actions taken by users or for unintentional regulatory violations.
However, Lewellen argued that such guidance is not legally binding and does not provide long-term protection. He stated that a memo cannot replace clear legal rules or court-backed certainty.
The ruling reflects a broader issue in the industry, where developers are seeking more defined boundaries on liability when creating decentralized or non-custodial tools.
PREVIOUS CASES RAISE CONCERNS FOR DEVELOPERS
Lewellen’s legal argument pointed to past prosecutions involving crypto software developers as evidence of potential risk. He cited cases such as Tornado Cash and Samourai Wallet, where developers faced charges related to operating unlicensed money-transmitting businesses.
Tornado Cash co-founder Roman Storm was convicted last year, while the founders of Samourai Wallet were also found guilty on similar charges. These cases have raised concerns across the crypto industry about how laws are applied to software developers.
Advocacy group Coin Center, which supported Lewellen’s case, has repeatedly argued that developers should not be held liable for how users interact with their software.
CASE DISMISSED WITHOUT PREJUDICE, DOOR REMAINS OPEN
The court dismissed Lewellen’s case without prejudice, meaning he has the option to file the case again with modifications. His legal team is currently exploring possible next steps.
Judge O’Connor noted that the earlier cases cited by Lewellen involved allegations of money laundering, while Lewellen’s situation involved operating a business without knowingly handling illicit funds.
CALLS FOR CLEARER CRYPTO REGULATION
Following the dismissal, both Lewellen and Coin Center Executive Director Peter Van Valkenburgh called for legislative action to provide clarity.
They pointed to the proposed Blockchain Regulatory Certainty Act of 2026, introduced by Senator Cynthia Lummis, which aims to clarify that developers of non-custodial software who do not control user funds should not be classified as money transmitters.
Van Valkenburgh said that current guidance, including the DoJ memo, does not offer meaningful protection and leaves developers exposed to potential legal risks. He emphasized that clear and durable rules are needed to support innovation while maintaining compliance.