For years, blockchain developers have urged U.S. courts to provide clearer ex ante guidance on when writing or deploying decentralized software crosses the line into regulated financial activity. A March 26, 2026 decision by Chief Judge Reed O’Connor of the Northern District of Texas underscores just how difficult that path remains.
Case Background
The plaintiff, blockchain developer Michael Lewellen, sued the Department of Justice (DOJ) seeking declaratory relief that his Ethereum‑based crowdfunding tool, “Pharos,” did not constitute money transmission or otherwise trigger regulatory obligations. According to the complaint, the software was designed as a neutral, open‑source tool that did not custody user funds or exercise control over transactions, functioning more like a technical interface than a financial intermediary.
Lewellen had refrained from launching his business out of fear of prosecution under 18 U.S.C. § 1960 (Section 1960), which criminalizes the failure “to comply with the money transmitting business registration requirements under 5330 of title 31, United States Code, or regulations prescribed under such section” for “whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business[.]”
Lewellen argued that the lack of clear statutory or regulatory guidance left developers in an untenable position: either abandon innovation or proceed under the constant threat that enforcement agencies might later reinterpret their conduct as unlawful. He sought a judicial declaration not only to protect his own project, but to create broader clarity for developers building decentralized financial tools.
The case was framed as a pre‑enforcement challenge—a category of cases in which plaintiffs seek advance judicial review of laws or regulations before any enforcement action has been taken. DOJ moved to dismiss the case for lack of standing.
The Court’s Decision
To establish standing to sue, a plaintiff must show (1) an injury in fact, (2) a sufficient “causal connection between the injury and the conduct complained of” and (3) a likelihood that the injury will be redressed by a favorable decision. A “‘threatened injury must be certainly impending to constitute [an] injury in fact,’ and . . . ‘[a]llegations of possible future injury’ are not sufficient.”
In the Fifth Circuit, in the case of a pre-enforcement challenge, a plaintiff meets the injury-in-fact prong if he “(1) has an intention to engage in a course of conduct arguably affected with a constitutional interest,” (2) his intended future conduct is proscribed by statute or policy, and (3) “the threat of future enforcement of the challenged [policy or rule] is substantial.”
Lewellen argued he had a credible fear of prosecution because of ongoing DOJ cases against defendants operating unlicensed “money transmitting” businesses under Section 1960 with similar non-custodial cryptocurrency technology. The court disagreed and held that Lewellen failed to show there was substantial threat of prosecution under Section 1960. The court reasoned that the core conduct in the cases brought by the DOJ was money laundering, whereas the core conduct for Lewellen would be running a business.
Chief Judge O’Connor relied on a DOJ memorandum entitled “Ending Regulation By Prosecution,” which formally declared that DOJ would not pursue enforcement actions against “virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations”—the exact scenario over which Lewellen brought his suit. According to the court, Lewellen admitted that his cryptocurrency software code was merely a tool. The fact that “DOJ has taken the position that [Section] 1960 does not require the business to have control of transferred cryptocurrency as a prerequisite to registering as a money transmitter” while targeting money laundering does not establish a credible threat of prosecution against a business simply because it uses a non-custodial cryptocurrency software.
Because Lewellen did not show “a credible threat of prosecution” under Section 1960, he did not have standing to bring his pre-enforcement challenge. The court therefore dismissed the case.
The Amicus
The following major crypto‑policy and developer‑advocacy organizations filed an amicus brief in support of Lewellen:
- Paradigm
- DeFi Education Fund (DEF)
- Blockchain Association
- Crypto Council for Innovation
- The Digital Chamber
- Bitcoin Policy Institute
- Solana Policy Institute
- Uniswap Foundation
These groups argued that DOJ’s use of Section 1960 against non‑custodial software developers is legally incorrect, historically unsupported, and constitutionally problematic.
The amici made arguments that were similar to the positions that the DeFi Education Fund included in their blog post in support of the recently introduced Blockchain Development Act (HR 7332), which would amend Section 1960 to make clear that it does not apply to developers that do not custody assets, execute transactions, or exercise control over users’ funds. To like effect is the Blockchain Regulatory Certainty Act of 2026 (BRCA), pending in the Senate. See our blog post here.
If either of these bills becomes law, it would mean that Congress will have solved legislatively what the courts refused to do judicially. Indeed, after the decision, Lewellen posted on X that Congress needed “to pass the BRCA to end this threat once and for all.”
