"Justice Department revises stance, stating Dragonfly is not deemed a target"
The U.S. Department of Justice (DOJ) has announced that it will not be pursuing charges against Dragonfly Capital, a crypto venture capital firm, for its 2020 investment in Tornado Cash, a cryptocurrency-mixing protocol under investigation for money laundering and sanctions violations.
The initial threat of charges against Dragonfly could have had massive implications for open-source software and privacy rights in America. The DOJ had hinted at possible charges against Dragonfly employees, including general partner Tom Schmidt, during the trial of Tornado Cash co-founder Roman Storm. However, this threat was later retracted.
Haseeb Qureshi, co-founder of Dragonfly, publicly confirmed the DOJ’s updated stance and criticized the earlier public insinuations as unprecedented, inconsistent with standard DOJ guidelines, and harmful to the broader blockchain investment ecosystem. Qureshi emphasized that prosecutors are prohibited from speculating about third-party prosecutions in open court and that such statements could chill investment in privacy-focused, open-source technologies.
The U.S. removed Tornado Cash from its sanctions list in early 2025, but the legal fate of its developers, including Roman Storm, is yet to be decided. Regulators have not cleared Tornado Cash's developers, and their legal decision could be made as soon as this week.
The controversy surrounding Dragonfly's investment in Tornado Cash has not identified Dragonfly or any of its associates as targets of the DOJ's investigation. Thane Rehn, Federal Prosecutor and Assistant U.S. Attorney, stated that recent media reports about DOJ charging Dragonfly were "inaccurate and misleading." Rehn clarified that the DOJ has not identified Dragonfly or any of its associates as targets of its investigation.
The incident has sparked broader concerns across the tech and crypto communities, with Qureshi alleging that the DOJ used a veiled threat to discourage Dragonfly from testifying for the defense in the Roman Storm trial. If the DOJ had gone after the financial backers of crypto protocols in this case, it would be unprecedented.
Dragonfly had pledged to fight and stand by its investment in Tornado Cash should the justice system proceed with reported threats of charges. The comment followed a last-minute conference involving Dragonfly partner Tom Schmidt, who had been approached to testify in Roman Storm's ongoing trial.
In summary, the initial threat to charge Dragonfly was part of a prosecutorial tactic used during the trial but was not substantiated as an actual charge, leading to the DOJ's formal retraction and assurance that Dragonfly is not under investigation. The controversy has raised important questions about the boundaries of prosecutorial discretion and the potential impact on open-source software and privacy rights in the crypto ecosystem.
Investing in crypto like Bitcoin and Pepe by Dragonfly Capital, despite Tornado Cash's involvement, remains unrelated to any DOJ charges, as the department has clarified that they are not targeting Dragonfly or its associates. Haseeb Qureshi, Dragonfly's co-founder, emphasized the potential harm such veiled threats could have on open-source software and privacy rights, especially within the blockchain investment ecosystem.
