Roman Storm Files Motion For Acquittal On All Counts
The Government would criminalize the publication of decentralized software in violation of the first amendment, the defense argues.
In August, Tornado Cash co-creator Roman Storm was found guilty by a jury in the Southern District of New York of conspiracy to operate an unlicensed money transmitter, and is facing up to five years in federal prison. Storm was additionally on trial for conspiracy to commit money laundering as well as conspiracy to violate sanctions, in which the jury was unable to come to a verdict. The Government has not stated whether it will retry the two charges.
Today, Storm has filed a motion for acquittal on all counts.
The defense is arguing that the statutes applied cannot withstand the scrutiny of the First Amendment, as the Government would effectively criminalize the publication of decentralized software.
Storm was discouraged from presenting a First Amendment defense at trial, as judge Failla had found that "the functional capability of code is not speech within the meaning of the First Amendment” in pretrial hearings, a finding which, according to the advocacy group CoinCenter, was based on outdated case law.
The defense is additionally arguing that the Government failed to establish venue and provide sufficient evidence for Storm's conviction. As the motion reads:
"Mere foreseeability or even knowledge that criminals are using one’s product does not create a conspiracy, and a failure to prevent a bad act is not the same as an agreement to assist it."
L0la L33tz
To Be or Not to Be a Money Transmitter
Storm's conviction of conspiracy to operate an unlicensed money transmitter was controversial from the beginning. As numerous advocacy groups as well as Storm's defense argued, Tornado Cash did not qualify as a money transmitter as its developers never took custody of funds, and therefore could never have engaged in the transfer of funds.
The case grew more complicated in light of Deputy Attorney General Todd Blanche's April memo discouraging the prosecution of software developers, which lead the prosecution to drop the sub-clause which alleged that Tornado Cash violated federal money transmitting registration laws from its argumentation. From here, the prosecution relied on the remaining sub-clause, which criminalizes the known transmission of illicit proceeds.
But, according to the defense's motion, the applied sub-clause "does not operate, like the government would have it, as a standalone prohibition on conduct related to the transfer of funds. [...] Subsection (b)(1)(C) only applies to money transmitting businesses that are federally registered."
The Acting Assistant Attorney General has since clarified that new charges under this sub-clause would not be approved against the developers of decentralized, peer-to-peer services.
The defense additionally argues that the Government did not just fail to prove that Storm had entered any agreement with criminals using the Tornado Cash protocol, that Storm had knowledge of criminal funds before transmission, and that Tornado Cash was a "business", but that it additionally failed to show that Storm knew that Tornado Cash could qualify as a money transmitting business.
The prosecution of both the Tornado Cash and the Samourai Wallet team had caused an overwhelming amount of confusion within the cryptocurrency community, leading many businesses to cease operations in the US who believed that non-custodial services had no obligation to register according to FinCEN guidance.
"Mr. Storm had no reason to believe that Tornado Cash was a money transmitting business," the motion states, and the Government presented no evidence to the contrary. Instead, "the government skipped this step entirely in its factual presentation," the defense argues, laying out that without knowledge of such an alleged violation, he could not be found guilty.
Rather, the motion states, the evidence presented shows that Storm did not believe to have an obligation to register.
L0la L33tz
Could Have, Would Have, Should Have KYCed
Another point of contention was whether Storm should have implemented anti-money laundering protocols, such as KYC, to stop bad actors from accessing the service. But as the motion cites judge Failla prior to the beginning of the trial, Mr. Storm "'didn’t have a legal or regulatory obligation to implement' such protocols, and the Court was 'troubled by the idea of him being convicted for not doing what he was not legally required to do.'"
The Government yet continued to allege that Storm willfully opted to not implement KYC for the duration of the trial, the motion argues, citing testimony from Government witness Philip Werlau, who argued that Storm could have implemented a registry to identify users of the Tornado Cash web interface, as well as an “an off-chain database maintaining the connection between deposits and withdrawals” – proposals that would have not just been completely ineffective to combat illicit activity on Tornado Cash as the UI was not needed to access the service, and that would have necessitated the development of an entirely different service if implemented in a way to combat illicit activity on the protocol level.
“'Could have' and 'should have' are the touchstones of negligence, not willfulness," the defense concludes.
Criminalizing The Development Of Decentralized Applications
“Content-based laws—those that target speech based on its communicative content—are presumptively unconstitutional and may be justified only if the government proves that they are narrowly tailored to serve compelling state interests,” the motion cites Reed v. Town of Gilbert, Arizona.
"The government’s arguments at trial demonstrated that its application of the statutes were based on the particular manner in which the Tornado Cash smart contracts and UI facilitated a user’s transaction on the blockchain—in other words, based on the content of the code that makes up Tornado Cash," so strict scrutiny should apply.
The government effectively argued that Storm "could have or should have re-written the Tornado Cash protocol code" to inclue KYC/AML, which amounts to content-based restrictions, the defense argues, as they "target the function or purpose of the code; and cannot be justified without reference to the content of the regulated speech—computer code designed to allow users to retain custody of their funds and not have to entrust their personal information to third parties in order to improve the privacy of personal financial transactions, which is a constitutionally protected interest."
Additionally, "the government’s arguments at trial also reflected 'disagreement with the message [the speech] conveys,' [...] given the repeated arguments that the decentralized nature of Tornado Cash indicate it was designed for criminals rather than to provide privacy for users," the defense states.
"Remember, when the defense says privacy, what that really means is hiding money for criminals, not providing privacy to regular people," the motion cites the prosecution, and "remember, privacy for criminals, not for regular people," as well as "the business was privacy for criminals."
"Absent a clear demarcation based on custody or control, the government’s enforcement of these statutes may deter or chill software developers from continuing to develop and publish decentralized applications altogether," the defense concludes, as the Government essentially argued that Storm should have created a centralized exchange instead.
In short, the application of statutes in the case against Storm cannot withstand the scrutiny of the First Amendment, as they "are not the least restrictive means of serving the government’s interests, even assuming such interests are compelling," and would effectively criminalize the "publication of decentralized software that can be misused by bad actors," wherein "the government threatens to chill the further development and publication of such software without necessarily achieving its goals," the defense concludes.
Ergo, all three charges brought against Storm are overly broad in light of the First Amendment, and should be dismissed, the motion states.
David Z. Morris
The Lack of Venue
The issue of venue, meaning the evidence that the Southern District of New York was in charge of the alleged crimes committed by Storm, was considered by many another large stretch in the case. So too by the jury, who appeared to question the validity of the Government's venue establishment on two occasions, leading to fierce debates between the defense and prosecution.
In the last conference before trial, even judge Failla questioned whether the Government would be able to prove that it was in charge of trying Storm, leading the defense to move for a last minute motion to dismiss. Venue was, among other things, established through communications between Storm and Peppersec investor Tom Schmidt, who was allegedly in New York at the time.
"What if the VC said 'I'm in New York and just saw an amazing play on broadway,' you are not going to suggest to me that that’s enough to establish venue,” Failla questioned the prosecution at the time.
Venue was additionally established through the developer's payment history with the Ethereum services company Infura, through communications between Storm and the Bitmart team, and a hacker's use of Tornado Cash, who was based in New York.
The Bitmart team had reached out to the Tornado Cash team as a result of its exploit for roughly $200 million in 2021 that was allegedly traced back to Tornado Cash. According to the prosecution, Storm failed to assist Bitmart in the recovery of funds, turning the developer's response into a subject in furtherance of the conspiracy, according to the Government. But Storm's response to Bitmart was truthful and correct the defense now argues – the developers had no ability to recover the Bitmart funds, and the statements were therefore not a subject in furtherance of the conspiracy – letting the messages fall short for the establishment of venue.
The defense argues that the hacker's use of the Tornado Cash website to seed a wallet not connected to his identity is "fatally flawed" for similar reasons: "Mr. Ahmed’s supposed use of the website was not caused by Mr. Storm or the founders and did not further any of the charged conspiracies." To establish venue the prosecution would have needed to prove that "the conspirators must have caused the acts; the acts must have materially furthered the ends of the conspiracy; and the acts must have been reasonably foreseeable to each defendant."
The defense additionally points out that the Government failed to prove that the payments Storm made to Infura were deposited into a Manhattan account, and that it was not foreseeable for Storm that Peppersec investor Tom Schmidt of Dragonfly was located in the Southern District of New York at the time Storm communicated with him – let alone that the messages in question were in furtherance of the conspiracy.
According to the motion, "Mr. Schmidt’s phone pinged in places other than Manhattan about half the time" in a conversation presented as evidence for venue, that Mr. Schmidt could have been anywhere in New York at the time of writing, and that the prosecution had mistakenly presented messages between Storm and Dragonfly's Haseeb Quereshi as messages between Storm and Schmidt in conversations presented as evidence for venue.
As the motion reads, "this is fatal to Count Three: there was no evidence that Mr. Schmidt—the only party that could plausibly tie the messages to Manhattan—even received or read the message, and that he did so while he was in fact in Manhattan, undermining any purported basis for venue."
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