A U.S. court has dismissed a lawsuit from a crypto developer seeking to preemptively protect his software from federal money transmitter laws, as legal uncertainty surrounding non-custodial software remains unresolved.
On Wednesday, the District Court of the Northern District of Texas granted the U.S. government’s motion to dismiss the lawsuit from Michael Lewellen, who developed Pharos, a non-custodial cryptocurrency software designed to facilitate donations to charitable crowdfunding campaigns.
In January 2025, Lewellen filed a lawsuit arguing that registering as a money transmitter under federal law would be impossible because the software’s privacy features prevent access to the required user information. He sought a declaratory judgment that his software was legal and an injunction against the enforcement of laws that criminalize operating an unlicensed money transmitting business.
The lawsuit attracted amicus support from a broad coalition of industry advocates, including the Blockchain Association, the Crypto Council for Innovation, and the DeFi Education Fund.
In Wednesday’s ruling, Chief Judge Reed O’Connor stated that Lewellen failed to demonstrate a “substantial threat of prosecution.” The court noted that while Lewellen cited ongoing DOJ prosecutions involving non-custodial crypto services, those cases centered on money laundering activities rather than the mere operation of a business tool.
“By contrast, the core conduct here would be running a business,” the ruling said. “And Lewellen disclaims any knowing transmission of criminal funds, which is central to the prosecutions he invokes.”
The judge also referenced the DOJ’s recent memorandum titled “Ending Regulation By Prosecution,” which directs the department not to pursue enforcement against crypto services for the acts of end users or unwitting regulatory violations.
The case was dismissed without prejudice, leaving open the possibility for Lewellen to refile if circumstances change to create a more imminent threat of enforcement.
No meaningful protection
In a post on social media platform X, Lewellen said that his legal team is “exploring all options for a path forward.”
“Disappointed to see the court dismiss my suit today,” Lewellen wrote. “A non-binding DoJ memo is no substitute for real legal certainty.”
The developer also urged Congress to pass the Blockchain Regulatory Certainty Act (BRCA), a bipartisan bill that would exempt non-custodial blockchain developers from being classified as money transmitters.
Peter Van Valkenburgh, executive director of crypto policy research group Coin Center, also weighed in on the ruling, stating that the DOJ memo has not provided meaningful protections for developers, particularly in light of the Tornado Cash and Samourai Wallet prosecutions.
Earlier this month, U.S. prosecutors officially requested a retrial for Tornado Cash developer Roman Storm on two unresolved charges related to alleged money laundering and sanctions violations.
Samourai Wallet founders Keonne Rodriguez and William Lonergan pleaded guilty to conspiracy to operate an unlicensed money transmitter in 2025 and are currently serving their sentence.
© 2026 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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