Tornado Cash ruling lays dangerous precedent: crypto lawyers

District Judge Katherine Polk Failla sparked outrage from the crypto community when she ruled to file a lawsuit against Tornado Cash and Roman Storm.

Judge Failla denied the defendants’ motion to dismiss, arguing that their possible use of the code was not protected as speech under the First Amendment. Allegations that crypto mixers operate differently than money-transmitting businesses were also dismissed in the Southern District of New York.

The general crypto group reacted angrily to Judge Failla’s decision. Social media users expressed concern that the court’s decision endangers open source development and developer freedom.

Crypto lawyers like Variant CLO Jake Chervinsky speculated that Tornado Cash and its co-founder Roman Storm were at the forefront of the fight for free speech in America following the September 26 ruling. Chervinsky emphasized that since this case sets a precedent, other code-based industries such as artificial intelligence may face similar lawsuits.

This is a slippery slope and we are sliding down quickly. Pay attention.

Jake Chervinsky, Variant HIS

It’s shocking to me that almost none of the non-crypto civil rights groups are included here.

Cryptocurrency is at the forefront of the fight for free speech, financial privacy and due process in the United States.

But the groups you expect to emerge and fight are nowhere to be found.

— Jake Chervinsky (@jchervinsky) September 27, 2024

Chervinsky’s remarks were shared despite the district judge rejecting allegations of government-sponsored censorship. Judge Failla was heard saying during the telephone hearing that the US crackdown on sanctions evasion and money laundering had nothing to do with freedom of expression.

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

Built on top of Ethereum (ETH) blockchain, the tool allows users to hide transactions. As a result, criminal elements such as North Korean hacking group Lazarus used the crypto mixer to launder millions of stolen funds.

Storm and the crypto community argue that builders should not be responsible for the “functional capacity” of their code; Judge Failla and the court opposed this opinion.

The trial will begin on December 2 and could take approximately two weeks to conclude. Elsewhere, Tornado Cash developer Alexey Pertsev was found guilty in a Dutch court for his role in building the cryptocurrency. Pertsev appealed the decision amid chants of “code is not a crime” in the community.