U.S. Prosecutors Explore Charges Against Dragonfly Capital Partners

U.S. prosecutors are considering charges against Tom Schmidt of Dragonfly Capital Partners regarding his investment in Tornado Cash’s developer, as revealed by Assistant U.S. Attorney Thane Rehn during Roman Storm’s trial in New York.

Background

The potential charges surfaced when defense attorneys looked to call Schmidt as a witness in the criminal trial of Roman Storm. Schmidt’s firm invested in Pepper Sec Inc., tied to Tornado Cash developers, in 2020.

Federal Involvement

Haseeb Qureshi, Dragonfly’s co-founder, stated they received a Department of Justice (DOJ) subpoena in 2023 and have cooperated with investigations, asserting their compliance with the law. He expressed disbelief that the DOJ would file serious charges against them and vowed to defend the firm vigorously.

Pleading the Fifth

After being called to testify, Schmidt invoked the Fifth Amendment. It’s uncertain if he will be compelled to give federal court testimony.

Tornado Cash and Legal Implications

This revelation coincides with a significant legal trial regarding Tornado Cash, which allows users to obscure cryptocurrency transactions using automated smart contracts. The case could define software developers’ liability for their code.

Storm is facing severe charges, including running an unlicensed money-transmitting business, violating U.S. sanctions, and conspiracy to launder money. The U.S. government argues that the Tornado Cash platform was exploited for laundering by criminals, leading to potential legal repercussions for Storm. However, many in the crypto community advocate that developers shouldn’t be liable for users’ actions, emphasizing privacy principles.

Communication with Dragonfly

Prosecutors noted that Storm and his co-founders engaged with Dragonfly principals, including Schmidt, about incorporating KYC features to align with U.S. regulations.

Investigation Developments

Reports indicate Schmidt’s home was searched during the investigation, and his devices were confiscated.