A federal judge in Texas has tossed a high-profile test case over whether crypto software can be treated as a money transmitter — a decision that leaves important questions about developer liability unresolved. The suit was brought by crypto developer Michael Lewellen, who asked the court to declare that his tool, Pharos — designed to facilitate donations to charitable crowdfunding campaigns — does not violate U.S. money-transmission laws. On Wednesday, Chief U.S. District Judge Reed O’Connor dismissed the case, finding Lewellen had not demonstrated a credible threat of imminent prosecution linked to his software. Lewellen expressed disappointment on X, saying, “Disappointed to see the court dismiss my suit today.” The dismissal was without prejudice, meaning he may refile after addressing the court’s concerns. In its opinion the court relied in part on a Department of Justice memo that said federal prosecutors would no longer target virtual-currency exchanges, mixing or tumbling services, or offline wallets for end-user acts or unwitting regulatory violations. Lewellen pushed back that the memo — which he and supporters view as nonbinding guidance — is insufficient “real legal certainty.” Judge O’Connor also rejected Lewellen’s comparisons to prosecutions of developers connected to Tornado Cash and Samourai Wallet. The judge said those actions were rooted in alleged money laundering and criminal conduct, while Lewellen’s project involves ordinary business operations and he denies knowingly transmitting illicit funds. For that reason, the prior cases were not close analogues to this one, the opinion noted. Civil liberties and crypto policy group Coin Center, which backed the lawsuit, echoed concerns about lingering uncertainty. Executive director Peter Van Valkenburgh warned that “the Blanche memo is not enough to secure their rights,” and both he and Lewellen urged Congress to act. They pointed to the Blockchain Regulatory Certainty Act of 2026, introduced by Senator Cynthia Lummis, which would clarify that developers of non-custodial software who do not control users’ funds are not money transmitters. Next steps are under review by Lewellen’s legal team. For now, the ruling leaves the legal status of non-custodial crypto tooling in limbo: prosecutors’ guidance offers limited reassurance, but developers remain without a definitive judicial or statutory safe harbor. Read more AI-generated news on: undefined/news

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