Tornado Cash Ruling Lays Dangerous Precedent: Crypto Lawyers

District Judge Katherine Polk Failla ruled in favor of a trial against Tornado Cash and Roman Storm, causing an outcry from the crypto community.

Judge Failla denied the defendants’ motion to dismiss, asserting that the possible uses of code were not protected as speech under the First Amendment. Arguments that the crypto mixer operated differently from money-transmitting businesses were also overruled in the Southern District of New York.

The general crypto caucus reacted with outrage to Judge Failla’s ruling. Social media users expressed concern that the court’s decision endangered open-source development and developer freedom.

Tornado Cash and its co-founder, Roman Storm, stand on the frontlines of a battle for free speech in America, crypto lawyers like Variant CLO Jake Chervinsky surmised after the late Sept. 26 ruling. Chervinsky emphasized that other code-based sectors, like artificial intelligence, could face similar lawsuits due to the precedent set by this case.

This is a slippery slope, and we’re sliding down fast. Pay attention.

Jake Chervinsky, Variant CLO

Chervinsky’s remarks were shared despite the district judge’s rejection of claims of government-sponsored censorship. Judge Failla was heard saying during the telephone hearing that the U.S. crackdown on sanction evasion and money laundering was unrelated to free speech.

Tornado Cash and Roman Storm were indicted on conspiracy and illegal money-transmitting charges in August 2023. According to federal prosecutors, Storm and other co-founders, like Roman Semenov, intentionally built the crypto mixer for criminal use. Authorities accused Storm and Tornado Cash of facilitating over $1 billion in illicit funds.

The tool, built atop Ethereum’s (ETH) blockchain, allows users to obfuscate transactions. As a result, criminal elements like the North Korean hacking group Lazarus have used the crypto mixer to launder millions in stolen funds.

Storm and the crypto community argue that builders should not be liable for the “functional capability” of their code, a stance that Judge Failla and the court disagreed with.

The trial will begin on Dec. 2 and could take around two weeks to conclude. Elsewhere, Tornado Cash developer Alexey Pertsev was found guilty in a Dutch court over his role in building the crypto tumbler. Pertsev appealed the verdict amid “code is not a crime” community chants.