Paradigm Files Amicus On Behalf Of Roman Storm

The investment firm Paradigm has filed an Amicus brief on behalf of Tornado Cash developer Roman Storm to demonstrate concern "that the prosecution of Roman Storm rests on a definition of 'money transmitting business' that is contrary to how money transmission works in practice and to prior regulatory guidance and legal precedent."

The Amicus advocates for the adoption of jury instructions proposed by Storm, focusing on whether Storm knowingly violated the law in light of striking ambiguities in the Government's interpretation of the money service business licensing requirement statutes.

The Government's Interpretation of the Law Will Chill Industry Innovation

Paradigm argues that allowing the Government's definition of money transmission to prevail "will harm software developers who have relied in good faith on past guidance and chill innovation in the industry."

While the Government has abandoned the theory that Tornado Cash is a financial institution it continues to attempt to hold Storm liable under U.S.C. 18 §1960(b)(1)(C), arguing that Storm "transmitted" illicit funds.

Focused on helping the jury to determine whether Storm was of "a guilty mind" when developing Tornado Cash – a prerequisite for criminal charges – the brief underscores discrepancies inherent to Deputy Attorney General Todd Blanche's memo, which promised to protect innovation in the US as outlined by Executive Order 14178 to Strengthen American Leadership in Digital Financial Technology on the one hand, while making a specific exception for charges under 960(b)(1)(C) on the other.

"Innovators like Storm would be threatened with criminal liability for developing and deploying technology that is not inherently criminal and that does not promote, condone, or control criminal conduct," Paradigm states.

"By submitting this brief," the brief reads, "Paradigm hopes to assist the Court in understanding the industry’s reliance on past regulator guidance on money transmission, the impact of expanding the definition of money transmission, and the critical need to cabin § 1960’s reach to true money transmitting businesses. Otherwise, § 1960 will be deployed unfairly against unsuspecting and innocent actors who produce or maintain decentralized software tools."

Notably, judge Failla, who oversees the criminal prosecution of Storm, had ruled on behalf of Paradigm in an earlier class action suit against the investment firm, in which Paradigm stood accused of engaging in "rampant fraud" by the offering of "pump and dump" tokens on the decentralized exchange Uniswap.

Despite several striking similarities between Tornado Cash and Uniswap, Failla appears ardent on the interpretation that Storm held enough control over the Tornado Cash protocol to be held criminally liable for the actions of its users, while Uniswap was not.

Who Transmits What? WhatsApp, iPhones, and Televisions

Paradigm's brief makes clear that "subjecting a software developer to criminal liability under § 1960 for others’ independent actions [...] would be as absurd as prosecuting a television manufacturer for state secrets being divulged on-air, leather craftsmen for wallets holding stolen cash, or Apple for conspiracies formed through iPhone conversations."

Interestingly, this is the same argumentation that Failla had wondered about in a 2024 hearing, asking whether the criminal charges against Storm were comparable to charging the developers of WhatsApp because criminals used it.

As Paradigm points out, "the jury must be required to find beyond a reasonable doubt that Storm knowingly operated a recurring, fee- charging, money-transmitting business, knowingly transmitted funds on behalf of the public, and knowingly handled the specific proceeds alleged to be criminal."

"In other words," Paradigm states, "Storm must have known that he was operating a business, and that the business was unlicensed and engaged in money transmission." Highlighting that "statutory regulations and industry standards" are at issue here, "the requisite “knowledge” is the defendant’s subjective knowledge and good faith belief, not what an objective observer might have known or believed."

"The Court must at least instruct the jury that, to convict, it must find that Storm knew that Tornado Cash was a money transmitting business even though it did not [...] control funds and [...] receive a fee."

"As logic dictates," Paradigm writes, "one cannot convey, hand over, or dispose of something without having possession or control over it," arguing that this is "exactly how federal courts have consistently understood the meaning of “money transmitting” in the context of § 1960," additionally referring to 2019 FinCEN guidance, which explicitly excluded "anonymizing-software providers" that do not have total independent control over the value.

"If the Court maintains its (incorrect) position that control over the funds is not required under § 1960," Paradigm concludes, "the Court should at least instruct the jury that Storm has to have known that control was not required and that he was operating a money transmitting business even though he did not have control over the funds."

"It would be profoundly unfair and contrary to due process for Storm to be found guilty, despite clear FinCEN guidance, established case law, and resulting industry consensus, that operation of a money transmission business requires control of funds and payment of a fee," the brief states.

Judge Failla continues to hold the opinion that Storm can be charged for licensing requirement violations, arguing that custody of funds is not an issue important to Storm's defense.

The Government has since moved to remove all of Storm's proposed expert witnesses from the trial, arguing that the witnesses would "waste jury time".

Eroding Trust in Regulators: The Samourai Wallet Brief

Similar arguments on the ambiguity of charges against developers have been made in an Amicus brief published on behalf of Samourai Wallet developers Keonne Rodriguez and William Hill by the advocacy groups Blockchain Association and DeFi Education Fund.

According to the advocacy groups, the Government's prosecutions of non-custodial software developers have cast "doubt on the legality of a wide range of software projects and exposed well-meaning developers to potentially significant criminal liability" and "ensured that the software developers and members of the cryptocurrency ecosystem cannot confidently rely on the careful and considered judgments of their regulators moving forward."

As highlighted by the groups, these prosecutions stand in direct contrast to President Trump's Executive Order 14178, which intended to "support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy" by "protecting and promoting the ability of individual citizens and private-sector entities alike to access and use for lawful purposes open public blockchain networks without persecution, including the ability to develop and deploy software," and "to transact with other persons without unlawful censorship."

The Blockchain Association and the DeFi Education Fund published their briefs following a bombshell revelation in the case against Samourai Wallet developers, showing that not even senior FinCEN staff believed that developers of non-custodial software would fall under money service business licensing requirements.

The advocacy group CoinCenter had argued as much in a 2023 statement, stating that the indictment of Storm runs "counter to FinCEN guidance." Coin Center Fellow Michael Lewellen has since sued the Department of Justice over its prosecution of software developers, alleging that the Government is criminalizing software development.

Amicus Curiae briefs are legal statements made by entities who are not direct parties to a case but have a strong interest in its outcomes, meant to provide the court with additional perspective.

Unfortunately, in the criminal prosecution of Samourai Wallet developers, the judge has ruled that "Amicus briefs [...] are not needed at the time," prompting the Blockchain Association and DeFi Education Fund to publish their briefs on their own platforms.

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