Paradigm Supports Tornado Cash Co-Founder Storm in Legal Battle

Venture capital firm Paradigm has filed an amicus brief in support of Roman Storm, a co-founder of Tornado Cash, urging the jury to be properly informed about the legal definition of operating a money-transmitting business. The brief, submitted to a New York District court on June 13, emphasizes the necessity for the jury to comprehend that for Storm to be convicted, the prosecution must demonstrate that he was knowingly involved in such activities. This includes charging fees, knowingly transmitting funds on behalf of the public, handling specific criminal proceeds, and having custody or control of the funds being transmitted or transferred.

Tornado Cash, a non-custodial crypto mixing protocol, does not hold or control the funds, which is a critical point in the defense's argument. The New York US Attorney’s Office, however, contends that Storm conspired to operate the crypto mixing service as an unlicensed money transmitter. Katie Biber, Paradigm’s chief legal officer, and Gina Moon, the firm’s general counsel, argue that this prosecution’s stance is contrary to the law, regulatory guidance, and decades of case law. They point out that under Obama, the US Treasury Department determined in 2014 that software development does not constitute the acceptance and transmission of value. Additionally, in 2019, the department found that total independent control over users’ crypto is a factor in determining if an intermediary is a money transmitter.

Biber and Moon warn that allowing this charge to proceed could enable unelected prosecutors to alter the plain meaning of criminal statutes, potentially threatening everyday citizens with imprisonment even if they follow widely accepted regulatory guidance. The US charged Roman Storm and fellow co-founder Roman Semenov in August 2023, accusing them of aiding in the laundering of over $1 billion in crypto through Tornado Cash. A guilty verdict could stifle innovation and software development in the crypto and fintech sectors, with potential ripple effects on broader open-source, AI, and technology communities. Software developers could face liability for how their products are used, a scenario Biber and Moon describe as absurd, likening it to prosecuting a television manufacturer for the sharing of state secrets on-air or a leather wallet craftsman for wallets holding stolen cash.

The trial is set to commence on July 14. Notably, a charge of conspiracy to operate an unlicensed money transmitting business was dropped on May 15 following the release of an April memo by the Department of Justice, which stated that the agency would not prosecute crypto mixers like Tornado Cash for users’ activities.