Guilty Verdict Generates DeFi Developer Despair: Is Storm's Split Verdict a Forecast of Coding Chill?

The closely followed verdict in the criminal prosecution of Roman Storm, Tornado Cash's founder, has finally been handed down. This action has a long history, after sanctions were imposed in 2022 on the Tornado Cash smart contracts, which provide a privacy tool not under the control of any individual (and so may be used by the criminals and innocent, freedom fighters and terrorists to render transactions more private).

This saga commenced with the prosecution of a Tornado Cash developer in the Netherlands, then OFAC seeking to sanction the Tornado Cash code, which sanctions were thrown out by the Courts, with Roman Storm being prosecuted alongside his co-founder in the United States. An attempt to dismiss the case was rejected and a full jury trial has now reached a verdict, with Mr Storm found guilty of conspiring to operate an unlicensed money transmission business. The other two charges, relating to money laundering and sanctions breaches, were hung, meaning the jury could not reach a unanimous verdict.

There has been criticisms of how the case has been run by the prosecution including that one of the prosecution witnesses recounted a scam they suffered, in which none of the proceeds of the scam ever touched the Tornado Cash smart contracts. and that one of the expert witnesses, not being allowed to mention AML/KYC, was still permitted to testify that Mr Storm could have implemented a "registry of authorised users to allow the service to confirm the identity of the people making deposits and withdrawals". Given the nature of Tornado cash as a privacy tool, this is quite surprising."

Mr Storm had been released on bail, and despite the verdict and the relatively short potential sentence, the US Government still sought to revoke Mr Storm's bail and asserted he was a flight-risk. The Judge rejected that, reportedly saying:

There is a lot of fighting left in this case before sentencing, and I think Mr. Storm will stay to fight it.

Lawyers in the crypto space have denounced the decision, with Jason Gottlieb saying:

Roman Storm's conviction for operating an unlicensed money transmission business is dangerous for all defi developers... It's also just wrong as a matter of law...

The Solana Policy institute said:

Today’s decision sets a dangerous precedent threatening every developer building decentralized technologies.

The DeFi Education Fund promised to keep backing Storm, saying:

The government’s case targeting a software developer should have never been brought in the first place and remains fundamentally flawed: Tornado Cash is non-custodial software through which people engage in self-directed, p2p transactions.  Even the government acknowledges that Tornado Cash developers did not and could not exercise control or custody over user assets. 

This case deals with the fundamental question of whether a software developer who deploys immutable and ownerless smart contracts should be held liable for the actions of its users. On one view, the technical and legal issues in this case are complex and not well suited to determination via jury trial. In any event, Mr Storm avoided a verdict on the most serious charges of money laundering and sanctions violations.

The case also raises questions over the legitimate use of technology to protect the privacy of financial transactions and information (something which Commissioner Peirce of the Securities and Exchange Commission weighed in to defend in a speech this week).

What's NXT?

The outcome is not perhaps the cloud over software developers or DeFi that some fear, as the Blockchain Regulatory Certainty Act, which is travelling with the CLARITY Act in the US Congress, would make clear that developers who don't control smart contracts cannot be operating a money transmission service, meaning no other developers should face similar prosecutions as Mr Storm.

In addition, while the prosecution may choose to retry the two counts on which the jury were hung, the prosecution commenced under the Biden Administration, and the Trump Department of Justice may elect not to re-try the case given the ongoing regulatory changes under way.

By Michael Bacina and Steven Pettigrove