Court Dismisses Case, Citing No Imminent Threat
A U.S. federal court in Texas has dismissed a preemptive lawsuit filed by crypto developer Michael Lewellen, leaving the legal status of non-custodial software developers in a state of continued ambiguity. On Wednesday, Chief U.S. District Judge Reed O’Connor granted the government's motion to dismiss the case, ruling that Lewellen had not demonstrated a credible or imminent threat of being prosecuted for creating his crypto donation software, Pharos.
In his ruling, the judge distinguished Lewellen's activities from the recent prosecutions of developers behind Tornado Cash and Samourai Wallet. Judge O’Connor argued that the “core conduct of those cases is money laundering,” which he contrasted with Lewellen’s stated intention of “running a business.” The case was dismissed without prejudice, which allows Lewellen to refile the lawsuit if the threat of prosecution becomes more concrete.
Developers Left Without Legal Safe Harbor
Despite the court's reasoning, the decision has been met with disappointment across the crypto industry, as it fails to establish a legal safe harbor for developers of non-custodial tools. Lewellen and his backers, including the advocacy group Coin Center, argued that the convictions of Tornado Cash's Roman Storm and guilty pleas from Samourai Wallet's founders for operating unlicensed money transmitting businesses create a legitimate fear of prosecution.
The court cited a Department of Justice memo indicating it would not target developers for the actions of their end users, but industry advocates argue this is insufficient. "A non-binding DoJ memo is no substitute for real legal certainty," Lewellen stated following the ruling. The dismissal reinforces the industry's view that developers remain at risk for creating open-source code that could be used by third parties for illicit purposes, a key concern for innovation within the U.S.
Focus Shifts to Congress for Regulatory Clarity
With the judicial path to clarity blocked for now, industry leaders are intensifying their calls for legislative action. Both Lewellen and Coin Center's executive director, Peter Van Valkenburgh, urged Congress to pass the Blockchain Regulatory Certainty Act of 2026. Introduced by Senator Cynthia Lummis, the bipartisan bill aims to explicitly state that developers and providers of non-custodial software who do not take control of user funds are not money transmitters.
Van Valkenburgh criticized the court's reliance on what he termed a "vague enforcement signal" that fails to provide a durable limit on government power.
Worse, the court has now used that vague signal as a reason not to provide actual judicial clarity on the scope of developer liability. Instead of a clear rule, developers get a revocable memo and a court telling them not to worry.
— Peter Van Valkenburgh, Executive Director at Coin Center.
