Crypto Developer Michael Lewellen Sues DOJ For Regulatory Overreach

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

Filed Thursday, the lawsuit seeks to prevent prosecution of his decentralized crowdfunding platform, Pharos, which he argues operates outside the scope of these regulations.

Pharos, built on Ethereum, uses “assurance contracts,” which employ smart contracts to hold funds and automatically refund donors if funding goals are unmet.

The lawsuit describes the platform as non-custodial, meaning Lewellen neither holds nor controls user funds.

Lewellen contends that the DOJ’s interpretation of 18 U.S.C. §1960 (Prohibition of illegal money transmitting businesses) improperly classifies non-custodial software developers as unlicensed money transmitters.

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

“The laws against unlicensed money transmission seek to regulate intermediaries in the sensitive business of moving customers’ money, not technologists who create tools that allow users to move money themselves,” the filing states.

Neither Lewellen nor the DOJ has responded to Decrypt’s request for comment.

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

The lawsuit points to 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 incoming Attorney General, former Florida Attorney General Pam Bondi underwent a Senate confirmation hearing on Wednesday.

Storm and Rodriguez Cases Central to Legal Argument

The lawsuit references 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 remains out of custody, Storm was arrested and is being tried in New York.

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

Prosecutors claim the wallet facilitated over $2 billion in suspect transfers, including more than $100 million tied to illicit marketplaces on the dark web.

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