A comprehensive understanding of the Tornado Cash co-founder Roman Storm's court hearing controversy: how will the case's trajectory impact DeFi legislation? - ChainCatcher

Original Title: The Trial That Could Decide The Future of Crypto

Host: David, Bankless

Guests: Jake Chervinsky, Amanda Tuminelli

Compiled & Edited by: Janna, ChainCatcher

Editor's Note:

Roman Storm is a co-founder of Tornado Cash, and he is from Washington, USA. Roman Storm and Roman Semenov have been charged with conspiracy to launder money, violating sanctions, and operating an unlicensed money transmission business. In August 2023, Roman Storm was arrested in Washington State and subsequently released on bail.

Roman Storm has been charged by the U.S. Department of Justice with three counts, including money laundering, sanctions violations, and operating an unlicensed money transmission business under Section 1960 of Title 18 of the U.S. Code. The trial results at the end of 2024 showed that Storm was convicted on the Section 1960 charge, but the jury was unable to reach a unanimous verdict on the more serious charges of money laundering and sanctions evasion.

This article is based on the interview content of the Bankless podcast, featuring veteran lawyers in the crypto field, Jake Chervinsky and Amanda Tuminelli, who conducted an in-depth analysis of the ruling. This ruling is not only about a single case but also a global issue concerning the maintenance of the openness and sustainable development of blockchain technology.

The following is the content of the conversation, compiled and organized by ChainCatcher.

TL & DR ：

• For Storm personally, this is a significant victory, as the jury did not convict on more serious charges of money laundering and sanctions evasion; however, for the industry, seeing developers convicted based on the theory of money transmission is devastating.
• The jury's inability to reach a consensus reflects the government's failure to prove the core theory that Storm intentionally assisted in money laundering.
• Count 1960 of the money transmission charges is more technical, with few litigation cases; the jury may view this as a compromise verdict, acknowledging misconduct but opting for a lesser charge.
• The grounds for appeal are strong, including the judge's error in the definition of currency transmission and the weak evidence regarding the location; the government's likelihood of reviewing the first two charges is low due to a lack of key evidence.
• The cryptocurrency industry needs to unify in pushing Congress to amend Section 1960, clarifying that the controlling entity for funds is the money transmitter; this will permanently protect developers from similar lawsuits.
• The Trump administration has delivered on several commitments, such as the passage of the Genius Act, but more focus is needed on market structure legislation; it is crucial to educate Congress on understanding that DeFi is not a criminal tool.
• If the Democratic Party returns to power, the confusion between illegal finance and cybersecurity may persist; establishing the best protective measures for mainstream product industries to make cryptocurrency a part of daily life.
• The greatest value of blockchains like Ethereum lies in their openness, allowing for diverse innovations; privacy should be seamlessly integrated into all wallets, rather than being an exclusive feature.
• Centralized data collection is vulnerable; if hacked, it can endanger national security. Encryption tools protect freedom and autonomy, relying on no entity.

Preliminary Impression of the Judgment

David: We are currently in the follow-up discussions regarding the Roman Storm verdict. Initially, we thought this was the conclusion of the event, but the actual situation indicates that we are still in the midst of the entire process, as Roman clearly stated upon leaving the court that he would appeal. Jake, could you please share your initial reaction to this verdict and the current progress of the Roman Storm case?

Jake: My first reaction was shock at the conviction of Roman on any charges. In the United States, no DeFi developer should face prosecution or imprisonment simply for building an unhosted protocol that is exploited by malicious users and over which the developer has no control or means to stop. This is absurd to me. Therefore, I feel regret about the current situation and the future of DeFi. This outcome is somewhat favorable for Roman personally. He faces three charges: money laundering, violating sanctions, and operating an unlicensed money transmission business under Section 1960. The jury was unable to reach a consensus on the first two charges, which are more serious from a sentencing perspective. The government failed to meet its burden of proof, which is a significant victory. As a result, Roman's statutory maximum sentence is 5 years instead of potentially decades. During the sentencing phase, the defense can make strong arguments for a sentence far below 5 years, and it could even be just probation. For the entire industry, seeing developers convicted based on a government-driven theory of money transmission is a devastating outcome. This theory has been proven wrong and poses an existential threat to DeFi.

David: Amanda, please share your insights and key points.

Amanda: Jake has covered the main points. I want to add that, as a former criminal defense attorney, I believe that the jury's failure to reach a unanimous decision, while not a complete victory, is indeed a success. The jury did not convict Roman on the charges of money laundering and sanctions evasion, which are very serious accusations and reflect the government's core theory—that is, proving that Roman intentionally assisted in money laundering. However, the government failed to achieve this goal, which is a success for Roman and his team's excellent defense. Section 1960, while a long-standing focus of ours, is more technical and legally nuanced. There are few legal cases on this charge, especially fewer that go to trial. The jury may view this as a compromise verdict, acknowledging wrongdoing, but choosing to hear what sounds like less serious charges. I want to emphasize that this is a significant victory for Roman.

Result Evaluation: Victory or Success?

David: Although this case does not establish a hard precedent, it can be seen as a "soft precedent," meaning that developers will not go to prison for writing code. It is reassuring that American software developers can go home to be with their families instead of being incarcerated. Please respond to my viewpoint; perhaps I am being too optimistic.

Jake: I support maintaining a positive attitude, but it's hard to view this as a significant victory because the conviction is based on the act of writing code, and Roman still faces imprisonment. Amanda correctly differentiates between victory and success, the former implying a certain finality, and this case is far from over. We are waiting to see if the government will reconsider the first two charges. If the government is confident there is sufficient evidence showing Roman colluded with malicious actions, we should have seen it in the initial trial. However, due to a lack of key evidence, I believe they are unwilling to retry. Nonetheless, this decision is partly influenced by political factors, and the jury's outcome is unpredictable. The government may choose to retry all three charges. Therefore, the current jury's failure to find that the government met the burden of proof on the first two charges is a success, but the issues are far from resolved.

Re-examination Probability Analysis

David: Is the government reconsidering the first two charges due to a lack of key evidence? If there is no new information, is the reconsideration merely an attempt to retry for a better outcome?

Amanda: Partially correct, but they can introduce new witnesses. In the first trial, the government made a mistake by calling a witness who claimed their funds flowed into Tornado Cash, but that claim was debunked. They might avoid similar mistakes and opt for better experts for tracking and analysis. If they choose to retrial, they can restart completely. Personally, I think they won't retrial and should feel fearful.

David: Is the outcome already decided?

Amanda: The outcome is still uncertain. Roman can propose motions under Rule 29 and Rule 33. The former seeks a judgment of acquittal, while the latter requests a new trial. Even prior to the appeal, there is still room for these motions concerning the conviction under Section 1960. The judge expressed doubts about the stability of the ruling, whether in her court or in the appellate court. She views Section 1960 as the most interesting issue, suggesting a possible acknowledgment of error. The government will not decide on a retrial before the motion results, as the outcome will impact its choices.

Jake: In typical cases, the government needs several days to several weeks to decide. This case is not typical, but the expedited review law requires a re-examination within 70 days, although it can be delayed. We will not wait for a long time.

Section 1960 Currency Transfer Dispute

David: Let's focus on the issue of Section 1960. This topic is at the core of our struggles in the cryptocurrency industry, ensuring that software developers, smart contract developers, and node operators do not have to register as money transmitters. The essence of blockchain is for asset ledgers; if any interaction is considered money transmission, the entire industry will be criminalized. This is incompatible with the spirit of the industry. Roman was merely uploading code to Ethereum and was accused, and this outcome is devastating.

Jake: For those who have not been closely following, it is time to be alert. Section 1960 requires money transmitters to register with FinCEN and comply with anti-money laundering regulations, which define the need to control customer funds. We wrote a 40-page analysis to support this point. FinCEN explicitly guided DeFi as such in 2019, and the Department of Justice's 2020 framework also recognized this. Roman followed this guidance. However, the Biden administration sanctioned Tornado Cash and prosecuted the developers for political motives rather than legal changes. The Department of Justice reversed the definition, stating that "facilitating transactions" is sufficient and does not require control. This theory was placed in a motion to dismiss, claiming that Roman should be responsible whether he knew or was ignorant. This injustice threatens all non-custodial protocol developers. The jury is bound by the judge's instructions, who accepted the government's theory, making conviction easy to appeal or overturn after trial motions.

Amanda: Jake has elaborated. The judge did not include the requirements for custody or control in the jury instructions, so the jury did not consider it. This point is suitable for appeal, challenging the instructions as well as the government's arguments.

Appeal Prospects and Optimistic Perspective

David: You all view the results as negative for DeFi, but emphasize that the grounds for appeal are sufficient. Roman expressed his intention to appeal and is in high spirits. This makes me feel optimistic, even though I am not a lawyer. Please temper my perspective and point out my naivety. Although we are at a disadvantage, the outlook is promising.

Jake: Disclaimer: I am not the audience's lawyer, and this is not legal advice. I agree that the grounds for appeal are strong. First, the judge made an error on the core issue: whether a non-custodial agreement constitutes money transmission. If the Second Circuit clarifies the definition, it would benefit Roman and the entire industry, although it is not as comprehensive as legislation. That is not the only reason.

Amanda: Another key point is the location. The government must prosecute in relation to the geography of the crime; the evidence in this case is weak, consisting only of text messages between Roman and people in Manhattan. The defense has challenged this point multiple times, which is well-preserved and easiest to overturn the verdict. Most importantly, it's Roman's feeling. If he feels supported and motivated, we will do our utmost to assist him in his challenge.

Precedent Strength and Impact

David: Roman needs community support to fight against the Department of Justice. The precedent in this case is weak, and an appeal can go to the Second Circuit to strengthen the precedent. Please explain how precedent is established and its strength.

Amanda: Precedents are divided into binding and persuasive. The Supreme Court is the most binding. The district court, as in this case, is the least persuasive and is only for reference by other courts in the Southern District of New York. The judge did not issue a written decision, making it harder to cite. If appealed to the Second Circuit and won, that definition becomes binding precedent for lower courts. With each level up, the strength of the precedent increases.

Future Programs and Ideal Outcomes

David: Suppose Roman appeals the 1960 conviction, what would the next steps be? If he wins, what would the outcome be? Please discuss in a balanced manner.

Amanda: The judge sets the deadlines for Rule 29 (Judgment of Acquittal) and Rule 33 (New Trial) motions. After submission, the government opposes, and Roman replies; the judge decides. If the conviction stands, then sentencing follows, and an appeal to the Second Circuit occurs. I hope the motion succeeds and overturns the conviction. Roman claims a 99.9% success rate for the appeal, while I view it as higher than 50%, more likely to succeed.

Jake: Ideally: the government does not re-examine money laundering and sanctions; dismiss or presidential pardon for 1960 charges; Congress amends Section 1960 to clarify the need to control funds. This protects the industry from similar issues in the future. Anything is possible if the industry unites. The president wants to make the U.S. the capital of crypto, and we must push for it.

David: This case is back under industry control. We have political influence and can change the outcome. Amanda, do you agree?

Amanda: Indeed. We can call the senators and request that the market structure bill includes protections for developers. Proposals such as the DeFi education fund suggest fixes, including amending Section 1960. We need to unify and ensure that the bill protects developers building neutral tools, rather than illegal finance.

Regulatory Bill Status

David: What is the current status of the Clarity Act and RFIA?

Amanda: Clarity is the market structure version passed by the House and is now in the Senate. RFIA is the draft for discussion in the Senate, which is still being refined. Both include legislation for blockchain regulation that protects developers. However, the Senate version lacks the protections for decentralized finance activities found in Clarity. We need to push for its inclusion. The Senate has released a simplified version and aims to collect feedback. Based on different foundations, we emphasize the need for protective support.

David: If Congress passes the protective legislation, this parallels the Roman appeal. Even with legislation, Roman still needs to appeal to overturn the conviction. Please clarify.

Jake: Congress cannot directly overturn a conviction, but if clarified as retroactive, the appellate court may view the original conviction as flawed. This is not the most direct path. The Department of Justice may dismiss the conviction or issue guidance defining that monetary transmission requires the control of funds. This distinction pertains to the actions of the Biden Department of Justice.

Amanda: It is the Biden Justice Department that is suing. If the Trump Justice Department wants to draw a line, it can veto. The momentum of the case originates from the previous administration, and it can now shift to support the U.S. becoming a cryptocurrency hub.

David: We have three paths: Congressional legislation, Roman appeal, and the Department of Justice stepping back. Legislation and appeal create a dual precedent, which is the optimal outcome.

Trump Administration Assessment

David: The Trump administration has led the crypto space for 8 months; how do you assess its fulfillment of commitments to cryptocurrency?

Amanda: The government has delivered on many promises, such as executive orders, presidential task force reports, stablecoins, and the passage of the Genius Act - the first cryptocurrency law. The focus has been ample, but there is still more progress needed in market structure and protections. It is crucial to educate members of Congress that DeFi is not a criminal tool.

Jake: I agree with this viewpoint. The atmosphere now is far better than during the Gensler era a year ago. Institutional progress is significant, such as the SEC's Project Crypto. However, the White House's focus on certain areas is progressing slowly, such as money transmission. We need legislative protection to prevent future government influence.

Future Political Uncertainty

David: What scenario might arise if the Democratic Party returns in 2028 and the hostility remains unchanged?

Amanda: Not just in 2028, but the composition of Congress in next year's midterm elections may change. We educate across party lines, but the confusion between illicit finance and cybersecurity still exists. The focus is overly on a small part of illicit finance in DeFi. We strive to differentiate, but the challenges remain.

Jake: If the Democrats regain control of the House of Representatives, market structure legislation will be difficult to achieve, leaving the next government without legislative protection. The outcome depends on the president's views. If the industry builds mainstream products, it will become the best defense. If it is limited to Bitcoin, stablecoins, and meme coins, the situation is concerning.

Industry Call to Action

David: What actions can we take if the stakes of the midterm elections are significant?

Amanda: We can vote and support pro-crypto candidates. We can call representatives and emphasize economic contributions. We can seek meetings or contact organizations like the DeFi Education Fund, Blockchain Association, etc. Participation is crucial during this critical time.

Jake: We can support the DeFi education fund and finance Roman's defense. Let's not forget Alexey Pertsev from the Dutch appeal, who also needs support.

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