The U.S. Department of Justice is weighing potential charges against Dragonfly Capital leaders following the current legal actions against Tornado Cash co-founder Roman Storm.
According to journalist Eleanor Terrett in a post on X, Storm’s defense had requested General Partner Tom Schmidt to testify on communications touching on Tornado Cash Know Your Customer (KYC) considerations. He refused to testify, pleading the Fifth Amendment.
“The defense had wanted Schmidt to testify, but he invoked the Fifth through his lawyer. It’s unclear whether he’ll be granted immunity (something the defense had reportedly been advocating for), or whether he’d testify if that happens.”
Eleanor Trent
His testimony might shed light on in-house deliberations of regulatory compliance, such as a 2020 email correspondence between Storm and his team asking for input on incorporating KYC features. Prosecutors have yet to confirm whether Schmidt will be offered immunity or whether he will be allowed to give evidence next week. Failure to testify may undermine Storms’ push to demonstrate that Tornado Cash thought about involving the regulator on matters relating to regulatory compliance prior to sanctions.
Storm is accused of conspiracy to commit money laundering, operating an unregistered money transmitter, and breaching the U.S. sanctions. The DOJ has claimed that Tornado Cash has enabled billions in illegal transfers, such as those involving the North Korean Lazarus Group . Although the U.S. government has reached an agreement to withdraw criminal charges related to civil sanctions against the crypto mixer, the criminal case has not been closed.
Dragonfly’s Haseeb responds to subpoena, criticism
Dragonfly Managing Partner Haseeb Qureshi issued a public response on X following the DOJ’s suggestion of potential charges. He affirmed that the company had invested in Tornado Cash according to a legal opinion stating that it is not in violation of the current rules.
Qureshi explained that their interest in privacy-preserving technology compelled the move. He emphasized that Dragonfly never operated or had control over the protocol. He labeled the possible charges as “outrageous” and cautioned that charging investors over the actions taken by portfolio companies would establish a dangerous precedent. He asserted that such a step would discourage any future investment in privacy-centered crypto projects.
Trial nears closing
U.S. District Judge Katherine Failla said it was possible that arguments would wind up as early as Tuesday or Wednesday of next week. As reported by Inner City Press, “two or three doctors” and possibly a Chainalysis expert will testify on behalf of Storm as part of his defense. The prosecutors intend to finish their case by Thursday, after which the Storm team will offer the final arguments.
Storm’s defense hinges on proving that he and his co-founders were not deliberately involved in illicit transactions and that Tornado Cash was a trusted code and not a money laundering platform. These emails sent to Dragonfly will be relevant in determining whether or not Storm requested legitimate legal control in the creation of the platform.
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