Table of Contents
Tornado Cash developer Roman Storm's partial conviction sends shockwaves through crypto, establishing precedent that could criminalize all DeFi development.
Key Takeaways
- Roman Storm convicted on Section 1960 money transmission charges while jury hung on money laundering and sanctions violations
- Conviction establishes dangerous precedent that non-custodial protocol developers can be prosecuted as money transmitters without controlling user funds
- Strong appeals prospects exist based on venue challenges and fundamental legal interpretation of money transmission requirements
- Trump administration faces pressure to reverse Biden-era prosecutions and clarify developer protections through DOJ guidance
- Congressional action needed to amend Section 1960 and provide permanent legislative protection for DeFi developers
- Industry mobilization required to ensure market structure bills include comprehensive developer safeguards before midterm elections
- Multiple pathways exist for resolution including appeals, DOJ dismissal, presidential pardon, and legislative fixes
Timeline Overview
- Opening Discussion — Lawyers Amanda Tuminelli and Jake Shervinsky analyze verdict implications for DeFi industry
- Verdict Analysis — Roman convicted on money transmission, jury hung on laundering and sanctions charges
- Legal Framework — Section 1960 requirements and government's controversial "facilitation" theory examined
- Appeal Strategy — Strong grounds including venue challenges and custody requirement disputes identified
- Political Solutions — Trump administration options and Congressional legislative pathways discussed
- Industry Response — Call for unified action on developer protections and market structure legislation
Devastating Victory: Understanding the Mixed Verdict
The Roman Storm verdict delivered a complex outcome that crypto lawyers describe as simultaneously devastating for the industry yet victorious for Storm personally. The jury convicted Storm on Section 1960 money transmission charges while hanging on the more serious money laundering and sanctions evasion counts.
- Storm faces maximum five years imprisonment instead of potentially decades, representing significant personal victory given prosecution's original charges
- Hung jury on money laundering demonstrates government failed to prove Storm knowingly facilitated illegal activity through Tornado Cash protocol
- Sanctions evasion acquittal undermines core government theory that developers intentionally assisted sanctioned entities like North Korea's Lazarus Group
- Money transmission conviction establishes troubling precedent that non-custodial protocol creators can be prosecuted without controlling user funds
- Verdict creates "soft precedent" problem where other prosecutors may view developer prosecutions as viable enforcement strategy
- Government must decide whether to retry hung counts, with 70-day Speedy Trial Act deadline providing some temporal pressure
Jake Shervinsky captured the industry's dismay: "It's insane to me that someone who has done that would be prosecuted and potentially incarcerated by the government."
Section 1960 Crisis: Redefining Money Transmission Law
The conviction hinges on a fundamental reinterpretation of money transmission laws that threatens every DeFi developer in America. The government abandoned years of established guidance requiring custody and control, instead arguing that mere "facilitation" constitutes money transmission.
- FinCEN explicitly stated in 2019 that money transmission requires control of customer funds, guidance DeFi industry relied upon for years
- Department of Justice enforcement framework from 2020 referenced FinCEN guidance without objection, appearing to endorse custody requirement
- Biden administration prosecutors introduced novel "facilitation" theory in reply briefs, abandoning previous regulatory interpretations without notice
- Judge Failla accepted government's custody-free definition in jury instructions, preventing jury from considering control requirements entirely
- Storm followed government guidance precisely, yet faces prosecution under retroactively applied legal theory creating due process concerns
- Every non-custodial protocol developer now faces potential prosecution under expanded money transmission interpretation
The legal foundation underlying DeFi development has been fundamentally undermined. Amanda Tuminelli noted that this prosecution represents "a political decision more than it is a legal decision."
Appeal Prospects: Multiple Avenues for Reversal
Storm's legal team possesses several strong grounds for appealing the conviction, with venue challenges potentially offering the most promising avenue for reversal. The case's legal foundations appear vulnerable to appellate scrutiny.
- Venue challenge represents strongest appeal ground, with minimal evidence connecting alleged crimes to Manhattan's Southern District
- Government's venue evidence limited to Storm texting with individuals claiming Manhattan residence, insufficient for federal jurisdiction
- Defense team preserved venue objections throughout proceedings, creating robust appellate record for challenge
- Section 1960 interpretation dispute provides second major appeal avenue, with no clear Second Circuit precedent on custody requirements
- Judge Failla acknowledged verdict's instability, stating appeal prospects exist even if post-trial motions fail
- Rule 29 and Rule 33 motions offer immediate opportunities to overturn conviction before formal appeal process begins
Legal experts estimate greater than 50% success probability for appeals, though criminal cases carry inherent unpredictability. The Second Circuit's eventual ruling could establish binding precedent protecting or condemning DeFi developers.
Political Pathways: Trump Administration Response Options
The Trump administration faces mounting pressure to reverse Biden-era cryptocurrency prosecutions and clarify developer protections through Department of Justice guidance. Multiple executive actions could resolve the Storm case without legislative intervention.
- DOJ could dismiss remaining charges and decline to retry hung counts, signaling departure from Biden prosecution strategies
- Updated Blanch memo or new DOJ guidance could clarify money transmission requires custody, protecting future developers
- Presidential pardon remains possibility, though politically sensitive given Storm's association with Tornado Cash protocol
- Jay Clayton's leadership at Southern District of New York creates opportunity for prosecutorial philosophy shift
- Administration's "crypto capital" rhetoric demands consistency with developer protection policies to maintain credibility
- Industry pressure and education campaigns targeting White House officials could influence executive decision-making
The administration's response will signal whether pro-crypto campaign promises translate into substantive policy reversals or merely rhetorical support.
Congressional Solutions: Market Structure and Developer Protections
Legislative action provides the most durable solution to developer prosecution risks, with ongoing market structure bills offering vehicles for comprehensive protections. However, political dynamics complicate swift passage.
- Senate's Responsible Financial Innovation Act (RFIA) currently lacks House Clarity Act's developer protection provisions
- Blockchain Regulatory Certainty Act would define money transmission appropriately, requiring custody or control elements
- Section 1960 amendments needed to prevent future prosecutorial overreach through legislative clarification rather than guidance
- DeFi Education Fund and industry groups propose comprehensive developer safeguards for inclusion in market structure legislation
- Markup scheduled for September creates deadline pressure for industry advocacy and Congressional education efforts
- Bipartisan support exists for crypto legislation, but developer protections require specific advocacy to ensure inclusion
Amanda Tuminelli emphasized urgency: "We won't settle for a market structure bill that doesn't have those fixes in it."
Industry Response: Mobilization and Strategic Priorities
The crypto industry must coordinate response across multiple fronts, combining immediate Storm support with long-term legislative advocacy. Success requires unprecedented unity and sustained political engagement.
- Roman Storm defense fund needs continued support for appeals and post-trial motions through potentially years of litigation
- Alex Pertsev's parallel case in Netherlands requires international developer solidarity and funding support
- Congressional outreach campaigns must target specific representatives with DeFi education and constituent pressure
- Trade association membership and donations provide organized advocacy infrastructure for sustained political engagement
- Builder community must demonstrate crypto's utility beyond speculation to justify regulatory accommodation
- Voting and campaign contribution strategies should prioritize pro-crypto candidates regardless of party affiliation
The industry's political maturation becomes evident through coordinated response capabilities, but sustained engagement remains essential for protecting development freedoms.
Common Questions
Q: What is Section 1960 and why does it matter for crypto? A: Federal law requiring money transmitter licensing that government now claims applies to non-custodial protocol developers.
Q: Can Roman Storm's conviction be overturned? A: Yes, through post-trial motions, appeals, DOJ dismissal, or presidential pardon with varying success probabilities.
Q: How does this affect other DeFi developers? A: Creates prosecution risk for any developer building non-custodial protocols that facilitate transactions.
Q: What can Congress do to protect developers? A: Amend Section 1960 to require custody/control for money transmission and include protections in market structure bills.
Q: Will the Trump administration help crypto developers? A: Unclear, but industry pressure and campaign promises suggest potential for DOJ guidance changes or prosecutorial reversals.
Storm's conviction represents a crossroads moment for American cryptocurrency development. The industry's response will determine whether developers face continued prosecution or gain durable legislative protection.
