Lewellen Tells Fifth Circuit DOJ Memo Does Not Remove Crypto Prosecution Risk

A pre-enforcement fight over Section 1960

Lewellen originally sued in federal court in the Northern District of Texas, seeking a declaratory judgment that publishing non-custodial software should not trigger prosecution under Section 1960, the criminal statute covering unlicensed money-transmitting businesses. His argument is that he should not have to wait for an investigation or indictment before asking a court to clarify whether the law reaches his planned conduct.

According to the reply brief, the Fifth Circuit must, at this stage, accept his allegations about how Pharos would function. Lewellen says those allegations show the DOJ would treat the software as a money-transmitting business unless he registered with FinCEN, creating what he describes as a credible threat of prosecution.

Why Lewellen says the threat remains real

A central dispute is whether the DOJ’s past crypto-related prosecutions make Lewellen’s concerns concrete. He points to the cases against the developers of Tornado Cash and Samourai Wallet as evidence that the department has adopted a broad interpretation of Section 1960, one that can reach developers of non-custodial tools even when they do not control user funds.

Lewellen also argues that FinCEN’s 2019 guidance does not shield him. That guidance indicated that software development alone is not money transmission and that custody over customer assets is a key feature of money transmission. But Lewellen says the DOJ has already disregarded that approach in earlier prosecutions, including by arguing that FinCEN’s guidance lacks authoritative effect.

His brief further argues that the government has not clearly disavowed prosecuting him. While the DOJ has said that the mere creation and launching of software is not itself a crime, Lewellen says the department has not withdrawn its broader view that publishing and operating non-custodial crypto software without registration can violate Section 1960. In his view, that leaves him with unresolved legal risk.

The dispute over the Blanche memo

The district court relied on a memo issued by Todd Blanche concerning DOJ policy in cryptocurrency cases when it concluded that Lewellen no longer faced a credible threat. Lewellen’s reply says that conclusion was wrong for two reasons: the memo was issued after he filed suit, and it addresses enforcement discretion rather than the department’s interpretation of the statute.

He argues that a policy statement can be changed at any time and does not erase the legal theory the DOJ has used in court. The brief also says the memo does not eliminate the department’s claimed authority to prosecute publishers of non-custodial software and still leaves room for registration-based charges in some circumstances. On that basis, Lewellen contends the memo cannot substitute for a judicial ruling on what Section 1960 actually covers.

Why the case matters beyond one developer

The filing comes after Congress failed to advance the Clarity Act, which included the Blockchain Regulatory Certainty Act. Coin Center argues that, even if the latest version of that proposal had passed, it would not have fully resolved criminal-law exposure under Section 1960, particularly because the statute’s subsections depend on whether someone is deemed to be operating an unlicensed money-transmitting business in the first place.

That leaves the courts as the next confirmed venue for clarifying how Section 1960 applies to non-custodial cryptocurrency software. The immediate question is whether the Fifth Circuit will allow Lewellen’s pre-enforcement challenge to proceed. If it does, the case would move back toward a judicial determination on the merits of the DOJ’s reading of the statute rather than the narrower question of whether Lewellen can sue now.