Dragonfly Investor in DOJ Crosshairs for Tornado Cash Gamble – Legal Storm Brewing?

Crypto's privacy wars heat up as federal prosecutors take aim at a Dragonfly Capital backer over alleged Tornado Cash ties. The mixer—once a darling of crypto anonymizers—now faces its reckoning.

Subheader: When 'Privacy' Collides With Prosecutors

The DOJ isn't buying the 'just infrastructure' defense. Charges could redefine what counts as culpability in DeFi—and send VCs scrambling to audit their portfolios.

Subheader: The Irony of Crypto's Compliance Complex

Funny how 'uncensorable money' keeps ending up in censored wallets. Meanwhile, traditional finance laughs into its spreadsheets—again.

Legal Spotlight Shines on Tom Schmidt

Tom Schmidt, a partner at Dragonfly, found himself mentioned in court when the prosecutor casually noted that charges against him were still on the table. That comment was quickly sealed from the record, but the message was clear. For now, he hasn’t been charged, but he’s under serious scrutiny. This kind of attention on a VC investor is rare, especially when they weren’t directly involved in day-to-day operations.

Emails from Dragonfly Surface in Court

One reason the DOJ is taking this angle may be the internal emails now in evidence. Messages from 2020 show Dragonfly discussing compliance features with Tornado Cash’s developers, including things like KYC. That might cut both ways. On one hand, it shows Dragonfly was aware of regulatory concerns. On the other hand, it could be used to argue they knew the risks and went ahead anyway. Schmidt, for his part, refused to testify, invoking the Fifth Amendment.

Dragonfly Isn’t Backing Down

Haseeb Qureshi, another managing partner at Dragonfly, has already responded publicly. He called the idea of criminal charges against an investor absurd. According to him, Dragonfly got legal advice before investing, didn’t run the company, and certainly didn’t help anyone launder money. He also stressed the firm’s commitment to privacy tech and said they’ve been cooperating with authorities since last year.

If a VC Can Be Charged, What Next?

This could set a new bar for legal risk in the crypto space. Charging a venture capitalist for putting money into a project that later becomes the focus of sanctions or enforcement could scare other investors off. There’s already hesitance around privacy tech, but this might take it further. Investors may start avoiding anything remotely controversial, even if the tech itself is neutral.

Schmidt Stays Silent, Defense Takes the Hit

With Schmidt refusing to testify, the defense team loses a key opportunity to explain Dragonfly’s side of the story. His testimony could have helped Storm show that the developers were working with partners who took compliance seriously. But since the government didn’t grant immunity, Schmidt kept quiet. That decision could impact how the rest of the case unfolds.

Big Picture for Crypto and DeFi

Roman Storm and his co-defendant are facing charges related to money laundering and alleged ties to sanctioned groups, including North Korea’s Lazarus Group. Regulators are clearly widening the net. It’s no longer just about developers. Now, backers and investors may be dragged into court as well.

Is this another phase where all this organization will start going after crypto companies? it absolutely makes no sense for DOJ to act like this. that is bitter nonsense

I hope you guys win and come out just like how consensys did.

stay strong haseeb.

— danny (@he3is_) July 25, 2025

Precedent or Warning Shot?

So far, Schmidt hasn’t been charged. But if the DOJ moves ahead, this could set a major precedent. If not, it still sends a signal that no one in crypto is off-limits. Investors may need to think twice about what they fund and how closely they stay involved. This case is no longer just about Tornado Cash. It’s about where the government draws the line.

Key Takeaways

• The DOJ is considering criminal charges against Dragonfly partner Tom Schmidt over the firm’s investment in Tornado Cash.
• Internal emails from 2020 show Dragonfly discussing KYC and compliance features with Tornado Cash developers.
• Schmidt invoked the Fifth Amendment and refused to testify, limiting the defense’s ability to present Dragonfly’s role.
• Dragonfly managing partner Haseeb Qureshi called the idea of charging a VC absurd and said they followed legal guidance.
• This case could set a new precedent, with investors facing legal exposure for the actions of crypto projects they back.