Developer Files Constitutional Challenge Against DOJ’s Crypto Enforcement Approach

TLDR:

• Developer Michael Lewellen sues DOJ over interpretation of money transmission laws affecting his non-custodial crowdfunding protocol Pharos
• Lawsuit claims DOJ’s broad interpretation violates First Amendment rights by criminalizing software code publication
• Case parallels recent prosecutions of Tornado Cash and Samourai Wallet developers
• Pharos uses smart contracts for automatic fund management without intermediaries
• Incoming Attorney General Pam Bondi will inherit the case as Merrick Garland prepares to leave

A blockchain developer has taken legal action against the U.S. Department of Justice (DOJ), challenging how federal authorities regulate cryptocurrency software development. Michael Lewellen filed the lawsuit on January 17, 2025, arguing that the DOJ’s interpretation of money transmission laws threatens innovation in the crypto sector.

Lewellen developed Pharos, a crowdfunding platform built on the Ethereum blockchain. The platform uses smart contracts to manage fundraising campaigns automatically.

When users contribute funds to a project, the smart contracts hold the money and can return it if fundraising goals aren’t met. This process happens without any person or company controlling the funds.

Today, I’m taking a stand against the Biden administration’s unjust crackdown on crypto development. I’ve filed a lawsuit against the DOJ to challenge their flawed and unjust interpretation of the law.

My work on Pharos—a non-custodial protocol for public goods…

— Michael Lewellen (@LewellenMichael) January 16, 2025

The heart of the lawsuit centers on how the DOJ treats non-custodial protocols like Pharos. These are tools where developers don’t hold or control user funds. Instead, users maintain direct control over their money through the software. Lewellen argues that creating such tools shouldn’t fall under money transmission laws, which traditionally regulate businesses that handle customer funds.

The legal challenge points to specific federal regulations, particularly 18 U.S.C. §1960, which covers illegal money transmitting businesses. According to the lawsuit, the DOJ has stretched the meaning of these laws beyond their intended purpose. Lewellen maintains that the laws were meant to oversee companies that act as middlemen for moving money, not developers who create tools for users to manage their own funds.

In his court filing, Lewellen raises constitutional concerns. He claims the DOJ’s actions violate the First Amendment by treating the publication of software code as a crime. The lawsuit also argues that the Fifth Amendment is being violated because the laws are being enforced in unclear and inconsistent ways.

The timing of the lawsuit coincides with a leadership change at the DOJ. Current Attorney General Merrick Garland is preparing to step down, with former Florida Attorney General Pam Bondi set to take over following her recent Senate confirmation hearing.

Lewellen’s case follows similar legal battles in the crypto space. In 2023, the DOJ charged Roman Storm and Roman Semenov for their work on Tornado Cash, a cryptocurrency mixing service. Prosecutors claimed the service helped criminals hide stolen funds. Storm was arrested and faces trial in New York, while Semenov remains outside U.S. custody.

Another related case emerged in April 2024 when authorities arrested Keonne Rodriguez and William Lonergan Hill, developers of Samourai Wallet. The DOJ accused their Bitcoin wallet software of enabling over $2 billion in suspicious transactions, including $100 million connected to dark web marketplaces.

These previous cases form a key part of Lewellen’s legal argument. He suggests they show a pattern of the DOJ targeting developers who create privacy-focused tools, rather than focusing on the actual criminals who misuse them.

The DeFi Education Fund’s chief legal officer, Amanda Tuminelli, has publicly supported Lewellen’s action. She praised his willingness to stand up for software developers’ rights, calling the lawsuit “hero stuff.”

Peter Van Valkenburgh, who leads the non-profit organization Coin Center, also expressed support for Lewellen. He emphasized the importance of defending developers’ rights to publish software.

The lawsuit highlights ongoing debates about how to regulate cryptocurrency technology. While developers argue for the right to create innovative tools, regulators worry about these tools being used for illegal activities.

Lewellen’s Pharos platform demonstrates the technical aspects of the debate. It uses “assurance contracts” through smart contracts on the Ethereum blockchain. These contracts automatically manage fundraising processes, ensuring transparency and removing the need for trusted intermediaries.

The platform’s design reflects a key principle in cryptocurrency development: reducing reliance on middlemen who traditionally handle and control user funds. This approach aims to increase financial privacy and reduce costs, but it has led to clashes with traditional regulatory frameworks.

Throughout the legal documents, Lewellen emphasizes that his work focuses on creating tools rather than providing financial services. He argues that treating software developers like traditional financial businesses misunderstands the nature of blockchain technology.

The developer stated in court documents that the DOJ’s current approach forces American innovators to either avoid creating new technology or move their operations overseas. This situation, he argues, hurts the United States’ position in the developing blockchain industry.