DoJ Backtracks: ‘Dragonfly Not a Target’ – Regulatory Whiplash Strikes Crypto Again

Another day, another regulatory flip-flop—this time with Dragonfly Capital dodging the bullet (for now).

The U-turn no one saw coming

Just when the crypto world braced for another enforcement bloodbath, the DoJ pulled a 180. No subpoenas. No raids. Just awkward silence and a mountain of legal bills.

VCs exhale (while retail bags get heavier)

Dragonfly’s portfolio companies can stop sweating—this round. But let’s be real: when regulators zigzag like a drunk trader, everyone loses except the lawyers charging $1,500/hour to ‘interpret’ the guidance.

One hedge fund manager yawned: ‘Wake me when they actually make up their minds.’

Key Takeaways 

DOJ has backtracked on last week’s reports that it would bring charges against crypto VC Dragonfly for supporting Tornado Cash. 

The U.S. Department of Justice (DOJ) has clarified it is not pursuing charges against crypto venture capital firm Dragonfly over its investment in Tornado Cash.

In a statement, Thane Rehn, Federal Prosecutor and Assistant U.S. Attorney, said recent media reports were “inaccurate and misleading.”

He added, 

“The government wants the record to be clear that it has not identified Dragonfly or any of its directors, officers, employees, or controlling investors as targets of its investigation.”

Source: X

Dragonfly slams DoJ

The DoJ’s U-turn followed Dragonfly’s pledge to fight and stand by its investment in Tornado Cash should the justice system proceed with the reported threat of charges. 

The controversy arose after DOJ prosecutors hinted in open court that Dragonfly could face charges simply for backing an open-source privacy protocol.

In fact, the comment followed a last-minute conference involving Dragonfly partner Tom Schmidt, who had been approached to testify in Roman Storm’s ongoing trial.

Hasseeb Qureshi, managing partner at the VC firm, welcomed the MOVE but maintained that last week’s ‘threat’ was a ‘clear violation of DoJ policy.’

“The DOJ’s public statements on Friday in open court—that Dragonfly, as investors, could face prosecution merely for backing an open-source privacy technology—was not only unprecedented, it was a clear violation of DOJ policy.”

Source: X

Qureshi said the DOJ used the veiled threat to discourage them from defending Storm.

“They (DoJ) are never allowed to speculate on prosecuting a third party in open court in front of the media. The prosecutors did this to prevent us from testifying for the defense.”

What’s at stake

The incident sparked broader concerns across the tech and crypto communities. In fact, this case WOULD be unprecedented if the DOJ had gone after the financial backers of crypto protocols. 

Qureshi added,

“Its outcome will have massive implications for open-source software and privacy rights in America. We are hopeful that the American judicial system will get this right.”

The U.S. removed Tornado Cash from its sanctions list in early 2025 after accusing North Korean hackers of using it to launder funds.

But regulators have not cleared its developers, including Storm. Their legal fate could be decided as soon as this week.