- Prosecutors in New York said they may file criminal charges against employees at Dragonfly Capital for a 2020 investment in crypto privacy tool Tornado Cash.
- The case emerged during the ongoing trial of Tornado Cash developer Roman Storm, who faces up to 45 years in prison if convicted.
- Discussion in court referenced messages between Storm and Dragonfly partners, suggesting communication about the investment and Tornado Cash operations.
- Prosecutors did not offer immunity to Dragonfly general partner Tom Schmidt, leading him to decline to testify by invoking his Fifth Amendment rights.
- Dragonfly stated they have fully cooperated with the investigation and stand by their investment, arguing they did not control or operate Tornado Cash.
Prosecutors in New York told a federal judge Friday that they are considering filing criminal charges against certain employees of Dragonfly Capital, including general partner Tom Schmidt, for the firm’s 2020 investment into Tornado Cash. The statement came during a break in the ongoing trial of Tornado Cash developer Roman Storm at the Southern District of New York.
Roman Storm is charged with conspiracy to commit money laundering, conspiracy to operate an unlicensed money transmitting business, and conspiracy to violate international sanctions. If found guilty, he could receive up to 45 years in prison. Prosecutors introduced messages in court between Storm and two Dragonfly partners, including Schmidt and managing partner Haseeb Qureshi, as evidence.
Prosecutors used these communications to help establish the trial’s venue in Manhattan and to show that Storm and his associates benefited financially from Tornado Cash. The messages also detailed adjustments made to the user interface of Tornado Cash. When Storm’s defense suggested that Schmidt might testify, prosecutors declined to grant him immunity. Schmidt then chose to plead the Fifth and not take the stand. Judge Katherine Polk Failla asked prosecutor Nathan Rehn if the government planned to prosecute everyone at Dragonfly. Rehn responded, according to Inner City Press, that only Schmidt and another person were being considered. The judge agreed to seal that part of the discussion.
After the hearing, Dragonfly managing partner Haseeb Qureshi wrote on X that the firm believes in Americans’ right to privacy and supports technologies addressing privacy in crypto. Qureshi stated, “We did not operate or exercise any control over Tornado Cash, we had no contact with any malicious users, we always encouraged our portfolio companies to follow the law, and we maintain that Tornado Cash itself has a lawful right to exist.” Qureshi argued that charging a venture firm for the actions of a portfolio company would be unprecedented and highlighted that Dragonfly has fully cooperated with investigators since 2023.
Qureshi described possible charges against Dragonfly as “outrageous” and said such actions would discourage investment in privacy-preserving crypto technologies. He added that the firm intends to defend itself if any charges are brought.
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