Dragonfly Capital Cleared: DOJ Drops Scrutiny in Tornado Cash Case, Says Co-Founder
Big win for crypto's big players—Dragonfly Capital just dodged a regulatory bullet.
The DOJ quietly backed off its investigation into the VC firm's ties to Tornado Cash, according to co-founder Haseeb Qureshi. No subpoenas. No fines. Just another day in the Wild West of crypto finance—where the rules are made up and the compliance doesn't matter.
Behind the scenes: This move signals regulators might be picking their battles after the chaotic Tornado Cash sanctions. Or maybe they just lost the paper trail in a mixer.
Bottom line: When even the DOJ can't pin down crypto's shadowy money flows, maybe the real crime is traditional finance's 19th-century surveillance tech.
Dragonfly's Tornado Cash investment
Dragonfly had invested in the Tornado Cash development team in August 2020, believing in what Qureshi called "the importance of open-source privacy-preserving technology."
The firm obtained outside legal counsel confirming that Tornado Cash complied with existing regulations before investing.
When Storm's defense team sought to call Schmidt as a witness to provide context for the investment and internal communications, prosecutors declined to grant immunity, prompting Schmidt to invoke his Fifth Amendment rights and refuse to testify.
It was during this Friday court proceeding that prosecutors first indicated they were contemplating charges against Dragonfly personnel.
“They are never allowed to speculate on prosecuting a third party in open court in front of the media,” Qureshi tweeted. “The prosecutors did this to prevent us from testifying for the defense."
A Chainalysis witness also invoked Fifth Amendment protections after prosecutors contacted the firm, with the defense suggesting potential criminal exposure since Chainalysis operated a Tornado Cash relayer that prosecutors have characterized as part of the alleged conspiracy, The Rage reported.
As the Storm trial nears closing arguments, the outcome is expected to set significant precedent on whether open-source developers and their backers can be prosecuted, days after the founders of Bitcoin mixer Samourai Wallet pleaded guilty to similar charges.
Storm and Tornado Cash co-founder Roman Semenov were charged in 2023 with operating an unlicensed money-transmitting business and violating sanctions after the Treasury Department added Tornado Cash to its sanctions list in 2022.
A third co-founder, Alexey Pertsev, was separately convicted in the Netherlands.
