Texas Court Dismisses Crypto Dev Lawsuit for Clarity

A Texas federal court dismissed crypto developer Michael Lewellen’s lawsuit seeking pre-enforcement clarity on whether publishing non-custodial software could expose him to criminal prosecution under money-transmission laws, leaving one of the industry’s most pressing legal questions unresolved.

Chief U.S. District Judge Reed O’Connor of the Northern District of Texas issued the ruling on March 26, 2026, finding that Lewellen failed to demonstrate an imminent or credible threat of prosecution. The dismissal was without prejudice, meaning Lewellen can refile if circumstances change.

The Lawsuit: Why a Crypto Developer Took the Fight to a Texas Court

Lewellen, a Coin Center fellow, built Pharos, a non-custodial Ethereum protocol designed to coordinate crowdfunding for charities. He compared the tool to “an envelope used to move checks in the mail,” arguing it simply facilitates transfers without taking custody of user funds.

The core legal question was whether publishing such software constitutes operating an “unlicensed money transmitting business” under 18 U.S.C. § 1960 and the Bank Secrecy Act. A conviction under those statutes carries up to five years of imprisonment.

Lewellen filed the case (4:25-cv-00030) in the Northern District of Texas, originally styled as Lewellen v. Garland before being updated to Lewellen v. Bondi. He sought a declaratory judgment that publishing Pharos would not expose him to criminal charges.

The lawsuit drew significant industry support. The Blockchain Association, DeFi Education Fund, and Solana Policy Institute all filed amicus briefs backing Lewellen’s position, signaling that the case carried implications well beyond one developer’s project.

Lewellen pointed to real prosecutions as evidence that the threat was not hypothetical. Roman Storm, a developer behind Tornado Cash, and Keonne Rodriguez and William Lonergan Hill of Samourai Wallet were all indicted under the same money-transmitter theory Lewellen sought to pre-empt.

Why the Court Dismissed the Case, and What Developers Say It Gets Wrong

Judge O’Connor ruled that Lewellen had not shown an imminent or credible threat of prosecution sufficient to establish standing for a pre-enforcement challenge. Without that threshold met, the court declined to issue what would amount to an advisory opinion on the legality of publishing non-custodial code.

The judge drew a distinction between Lewellen’s situation and the Tornado Cash and Samourai Wallet prosecutions. Those cases, O’Connor noted, involved allegations of “money laundering,” while Lewellen’s conduct amounts to “running a business.” That framing suggests the court viewed the two scenarios as legally distinct, weakening Lewellen’s argument that existing prosecutions proved he faced the same risk.

Lewellen pushed back forcefully. “A non-binding DoJ memo is no substitute for real legal certainty,” he said, referencing the so-called “Blanche Memo” that signaled a softer enforcement posture toward non-custodial developers under the current administration.

Attorney Jonathan Schmalfeld underscored the gap between policy signals and legal protection. “If the Blanche Memo was actually a panacea for developers’ right to create neutral code freely, [Roman Storm] wouldn’t still be fighting for his freedom,” Schmalfeld told DL News.

The “without prejudice” designation is a narrow silver lining. If the DOJ issues a formal warning, initiates an investigation, or takes any concrete step toward prosecution, Lewellen could refile with stronger standing. But for now, the judicial path to pre-enforcement clarity appears effectively closed for developers in similar positions.

What Comes Next: Legislative Paths and the Risks That Remain

With courts unwilling to rule before prosecution begins, the crypto development community is turning to Congress. Lewellen and Coin Center are now pushing for passage of the Blockchain Regulatory Certainty Act of 2026 (S.3611 / H.R.3533), introduced by Senators Cynthia Lummis and Ron Wyden and Representative Tom Emmer.

The bill would exempt non-custodial developers who lack unilateral control over user funds from federal money-transmitter classification. It has already passed House Financial Services Committee markup, making it a live legislative vehicle rather than a symbolic proposal.

That represents the bull case: bipartisan sponsorship, committee progress, and growing industry lobbying could push the BRCA across the finish line, providing the statutory safe harbor that courts will not create through declaratory judgment.

The bear case is equally concrete. Roman Storm’s prosecution continues. The Blanche Memo remains non-binding and could be reversed by a future administration. Without legislative action, developers face a legal environment where the only way to test the boundaries of money-transmitter law is to risk indictment.

Lewellen said his legal team is “exploring all options for a path forward,” though no appeal timeline has been announced. The more immediate marker to watch is the BRCA’s progress through the full House and Senate, where regulatory momentum around digital assets could either accelerate or stall the bill.

For now, the legal question at the center of the case, whether writing and publishing non-custodial crypto software can trigger criminal liability, remains exactly where it started: unanswered.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making decisions.