DOJ Reverses Legal Action Against Dragonfly for Tornado Cash Investment

The U.S. Department of Justice (DOJ) has reportedly reversed its stance on pursuing legal action against crypto venture capital firm Dragonfly for its early investment in the now-banned Tornado Cash mixer, according to a statement from Dragonfly co-founder Haseeb Qureshi. In a post on X on Tuesday, Qureshi cited a Monday court proceeding where the DOJ clarified it would no longer target the firm in its ongoing investigation. “The media reports that they were planning to bring charges against Dragonfly were inaccurate, and neither Dragonfly nor any of its principals are targets in their investigation,” Qureshi emphasized. This marks a significant shift from the DOJ’s earlier public comments on Friday, when it indicated it was considering charges against Dragonfly for its 2020 investment in Tornado Cash, a tool designed to obscure the origins of cryptocurrency transactions [1].

Qureshi criticized the DOJ’s initial Friday remarks as “not only unprecedented” but a “clear violation of DOJ policy,” arguing that prosecutors are prohibited from speculating about potential charges in open court. “They are never allowed to speculate on prosecuting a third party in open court in front of the media,” he wrote, highlighting concerns over procedural transparency. The reversal raises questions about the DOJ’s internal decision-making process and its alignment with legal precedents governing prosecutorial discretion.

The development occurs amid a broader legal crackdown on Tornado Cash. Roman Storm, a co-founder of the mixer, faces charges including conspiracy and sanctions violations linked to the platform’s use in facilitating illicit transactions. The DOJ’s actions against Tornado Cash intensified in 2022 when it designated the mixer as a sanctions target under Executive Order 14050, effectively blocking its operations and seizing associated assets. Dragonfly’s early investment in Tornado Cash—prior to its designation—has now become a focal point of scrutiny, though the DOJ’s current stance appears to exonerate the firm.

The case underscores the challenges faced by crypto investors and developers navigating rapidly evolving regulatory frameworks. While the DOJ’s backtracking may alleviate immediate legal risks for Dragonfly, it also highlights the ambiguity surrounding liability for pre-sanctions investments in technologies later deemed illegal. Analysts note that the outcome could influence future enforcement strategies, particularly regarding the retroactive application of sanctions to private sector actors.

[1] Source: [1] DOJ Won’t Pursue Charges Against Dragonfly, Exec Says (https://www.theblock.co/post/364788/doj-wont-pursue-charges-against-dragonfly-exec-says?utm_source=rss&utm_medium=rss)