Acquittal For Storm? Breaking Down The Government's Exotic Theories
At last week's hearing for Tornado Cash developer Roman Storm, the Government presented theories against Storm's acquittal that, at points, seemed to defy basic logic.
Last Thursday, a court in the Southern District of New York (SDNY) heard the Government and defense on Tornado Cash developer Roman Storm's motion for acquittal, which will decide whether Storm will be taken to a re-trial – and if his guilty charge will be vacated.
Following his conviction on one charge to conspire to operate an unlicensed money service business, Storm's council filed a so-called Rule 29 motion that would allow the court to vacate the developers conviction if it found that the evidence presented at trial was legally insufficient.
Discussions at Thursday's hearing focused mainly on whether SDNY was the correct jurisdiction for the case to be brought, which in turn touched on a range of issues critics have taken with Storm's prosecution. At points, even Judge Failla cautioned the prosecution.
L0la L33tz
Bro How The Fuck Does Tornado Cash Work Bro
The court's discussion on venue – whether any overt act of the criminal conspiracy actually took place in the Southern District of New York, thereby giving prosecutors jurisdiction – quickly divulged into three important issues of the case: the separation between the Tornado Cash user interface (UI) and the actual protocol, whether Tornado Cash transferred funds, as well as whether Tornado Cash was operated with criminal intent.
At the center first stood discussions on payments made to Infura, a hosting service used widely across the Ethereum ecosystem, which, according to the defense, did not actually touch bank accounts held in New York, as Storm had paid Infura in cryptocurrency. Plus, Infura was only used to host the UI, which was not essential to access the Tornado Cash protocol, Storm's lawyer Brian Klein pointed out.
"Did it have to be essential to be an over act?" Failla asked, describing that as "material furtherance that I'm not sure I agree with."
"It's a non-essential tool, your Honor, it's a neutral tool," Klein said, explaining that the difference between the Tornado Cash UI as a tool to access the protocol and the protocol itself were fundamental. "So it's not a tool designed specifically to engage in money laundering. Legitimate users could and did use it." She had seen the neutral tool arguments made by the defense, Failla responded, but that was something she had "not seen in case law."
"I think the Government will tell me that you are slicing the Salami too thinly," she predicted, addressing Klein's insisting on technical details. And indeed, the Government appeared to make no distinction between the UI and the protocol in its arguments at all.
Discussing emails sent by a lawyer of the cryptocurrency exchange BitMart, who was based in New York and had asked Storm for assistance in recovering stolen funds that allegedly flowed through Tornado Cash, the prosecution stated that Storm had lied when he had told BitMart's lawyer that he could not recover the funds because he could not control the pools, but he could control "the Tornado Cash protocol as a whole" – a lie, the Government says, which was told to distance himself from criminal acts.
"The defendant has been telling the court of public opinion and this court of law that he does not control the Tornado Cash protocol, and we saw at trial that's not true," Attorney Ben Arad, speaking for the prosecution, said. "It's hard to think of another explanation of why the defendant would stick to that story so obviously untrue, other than because he was trying to pull the wool over someone's eyes."
Even worse, Arad went on to suggest that it was in fact Tornado Cash which transferred the funds: laying out a hypothetical scenario in which someone runs a criminal business and instructs a third person to wire the money to a particular bank account via email in exchange for a fee.
"Is he not engaging in unlicensed money transmitting? Of course he is. He's transferring money from one place to another. [...] And so what Tornado Cash did was a lot more than just writing an email," and he had the technical details to back such claim up.
"On the deposit side," Arad argued, "it gave instructions to the depositor's wallet. The wallet wasn't just a conduit, it was an instrumentality of Tornado Cash in creating that transfer. And on the withdrawal side, it's even clearer that Tornado Cash is the one making the transfer because, there, it's the relayer itself that writes to the blockchain," adding that "it was Tornado Cash infrastructure with a Tornado Cash relayer, which is part of the cohort operating Tornado Cash for the purpose of transferring money from one place to another for a profit that was conducting these withdrawals."
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Is Inaction A Crime?
To decide whether the payments to Infura (and any other evidence on venue) mattered, the court has to decide what constitutes overt acts in furtherance of a criminal conspiracy. Does paying a third company to host the UI constitute criminal intent? Does maintaining and updating the protocol and the UI? The defense says no. The Government disagrees.
"Tornado Cash at its inception was not criminal, or at least the government hasn't argued otherwise," Klein pointed out. "There's no evidence, for example, that it was developed in order to facilitate the commission of crimes, there's no evidence that people sat in a room and said let us build a better mousetrap specifically for criminals. [...] A cryptocurrency mixer is legal, the Government's agreed with that," concluding that "the Government can't argue and isn't going to argue that running a cryptocurrency mixer itself is illegal."
Instead, Klein said, the Government is arguing that the developers should have stopped criminal behavior once they became aware of it, while dismissing the steps that they did take, such as implementing a Chainalysis Oracle, as window dressing. At the same time, said Klein, the Government is basing much of their arguments around actions that the developers should have taken, such as implementing a user registry. "That's just really a negligence case."
Failla disagreed. The Government has made "very clear that they're not holding your client liable for your client's inaction, but for affirmative conduct in which he engaged. [...] If you're going to talk to me about negligence, I'm probably not going to listen to you." However, Failla later clarified that she may ultimately side with the defense that the Government's theories on affirmative conduct do not suffice – she just wasn't hearing this particular issue today, later adding that internal communications do show that Storm and his team were concerned about criminal liability. "Whether their concerns actually bear out to criminal liability may be a different issue."
Asking the Government to elaborate on their arguments, Failla highlighted that "there's just a fundamental dispute about whether the trial evidence inaction or culpable inaction, or negligent conduct, or willful misconduct," to which the Government confirmed that it is not arguing that Storm did anything illegal by developing or running Tornado Cash. But is the Government arguing that Storm committed a crime in not shutting down Tornado Cash? "That's one way that the defendant and his co-conspirators could have avoided committing a crime," said the prosecution.
Wasn't not operating a thing the other side of operating a thing? Failla asked perplexed. Well, "I think the nuances do matter here," Arad responded.
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Operating Tornado Cash Was Not Illegal, Except It Was
As Arad laid out how Tornado Cash processed "hundreds of millions of Dollars" not just from anyone, but from the Lazarus group, Failla said she "might even agree with you" – but was still unclear on whether the Government was arguing that Storm exposed himself to criminal liability by failing to shut Tornado Cash down. Storm didn't need to shut down Tornado Cash, Arad responded again - he could have withdrawn himself from the operation.
"This is what confuses me," said Failla. "At what point, factually, did criminal liability inhere?" "Every step he took that was in furtherance of that service was a criminal act," Arad said, categorizing Storm's actions as "operating Tornado Cash". Failla again tried to clarify, telling Arad that she was "concerned" if their theory for criminal liability was merely keeping the business afloat while knowing that i was being used for bad purposes.
Arad, in turn, delved into even more confusing territory: claiming that their theory was that all funds in Tornado Cash could be deemed illegitimate, because they helped the service to operate – even if only a percentage of said funds came from actual criminal proceeds – and that therefore all improvements made to Tornado Cash constituted a criminal act.
"I might argue that you were doing better before you started talking," Failla responded. "Windows makes improvements to improve functionality, to perhaps change the screen so I can have it look more to my liking, and I, as [a] non-criminal, may find these developments to be beneficial and in fact useful, and some criminal may like to choose his background colors, as well. It can't be that improvement to a website on that level that benefits good and bad actors equally matters."
But the fact that Storm could have stopped or limited criminal action in Tornado Cash with feasible measures, that Tornado Cash continued to be improved, and that its developers designed Tornado Cash to be profitable was enough to go to a re-trial, the prosecution concluded.
Yet Tornado Cash and its UI are still running today, the defense pointed out, because Tornado Cash is in fact immutable. And when would have been the right time to walk away from Tornado Cash? "Nobody knows," Klein said, pointing out that the total of illicit funds running through Tornado Cash over the entirety of the charged time period amounted to a maximum 15%. "One-five, sir?" Failla asked to confirm. "Fifteen," Klein responded, asking what a "large part" of transaction volume would be that would constitute criminal intent – And even if that large part was satisfied, Storm never earned any fees from the improved relayer network, he stated.
Dates for a potential retrial on the remaining two charges of conspiracy to commit sanctions violations and conspiracy to commit money laundering have been suggested for October 26th, November 30th, and January 2027 which may point toward its authorization, though Judge Failla cautioned the parties to not read too much into the hearing regarding her state of mind on the issues being heard.
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