Federal judge dismisses Lewellen’s crypto software liability lawsuit, citing lack of credible prosecution threat

Chief U.S. District Judge Reed O’Connor dismissed a lawsuit by developer Michael Lewellen on March 25th, 2026, ruling that he failed to demonstrate a credible threat of prosecution under U.S. money-transmission laws. Lewellen had sought a declaratory judgment confirming that developing Pharos—a software tool for charitable donations—would not violate financial regulations.

Judge O’Connor found the lawsuit premature, stating “the plaintiff has not demonstrated a credible threat of prosecution,” and dismissed it “without prejudice,” allowing Lewellen to refile if circumstances change. The dismissal reignites debate over legal uncertainty facing non-custodial software developers in the U.S.

Crypto Software Liability Case Centers on Pharos Tool

At the heart of the crypto software case is Pharos, a software tool designed to facilitate donations to charitable crowdfunding campaigns.

Lewellen sought a declaratory judgment to confirm that developing and releasing such software would not violate financial regulations.

However, the court found that the crypto software liability case lacked urgency. Judge O’Connor emphasized that Lewellen had not shown any imminent enforcement action tied directly to his tool.

“The plaintiff has not demonstrated a credible threat of prosecution,” O’Connor wrote in his ruling.

The dismissal of the crypto liability case was issued “without prejudice,” meaning Lewellen retains the option to refile after addressing the court’s concerns.

Crypto Software Liability Case Draws Comparisons to Tornado Cash

A central argument in the crypto software liability case was Lewellen’s comparison to prior enforcement actions against developers of privacy tools like Tornado Cash and Samourai Wallet.

Lewellen argued that these cases highlighted real legal risks for developers building non-custodial software.

But Judge O’Connor dismissed these comparisons as weak.

“Those prosecutions centered on money laundering,” O’Connor stated.

In contrast, he noted that the crypto software  case involved the operation of a business rather than knowingly facilitating illicit transactions.

This distinction proved critical in the court’s reasoning, further weakening Lewellen’s claim that he faced similar risks.

Crypto Software Liability Case Sparks Industry Concern

The dismissal of the crypto software case has reignited debate over legal uncertainty facing blockchain developers in the United States.

Following the ruling, Lewellen expressed frustration on X (formerly Twitter):

“Disappointed to see the court dismiss my suit today.”

Despite the setback, the crypto software case may not be over. Lewellen confirmed that his legal team is reviewing possible next steps, including a potential refiling.

Crypto software Case Fuels Push for Regulatory Clarity. The crypto software liability case has also drawn strong reactions from advocacy groups like Coin Center, which supported Lewellen’s legal challenge.

Coin Center’s executive director, Peter Van Valkenburgh, criticized the court’s reliance on a Department of Justice memo.

“The Blanche memo is not enough to secure their rights,” Van Valkenburgh said.

The outcome of the crypto software liability case has intensified calls for legislative clarity, particularly around the legal status of non-custodial software developers.

Crypto Software Liability Case Highlights Push for New Law

In response to the uncertainty underscored by the crypto software liability case, industry leaders are rallying behind the proposed Blockchain Regulatory Certainty Act of 2026.

The bill, introduced by Senator Cynthia Lummis, aims to clarify that developers who do not control user funds should not be classified as money transmitters.

Supporters argue that passing the legislation would resolve the ambiguity exposed by the crypto software liability case, offering much-needed protection for innovation in the blockchain sector.

Crypto Software Case Leaves Industry at a Crossroads. The crypto software liability case ultimately underscores a growing tension between innovation and regulation.

While the court’s dismissal may appear procedural, its implications are far-reaching.

Without clear legal frameworks, developers remain in a gray zone—uncertain whether building decentralized tools could expose them to future prosecution.

As the crypto liability case continues to unfold, all eyes are now on lawmakers and regulators to provide definitive answers.