Texas Judge throws out crypto software liability case

A Texas federal court has dismissed a lawsuit filed by crypto developer Michael Lewellen, who sought a court ruling that his software would not violate US money-transmission laws. 

The case focused on Pharos, a tool designed to support donations to charitable crowdfunding campaigns. Chief US District Judge Reed O’Connor dismissed the case on Wednesday. The judge said Lewellen had not shown a credible threat of imminent prosecution tied to his software.

Lewellen reacted to the ruling on X. He wrote, 

”Disappointed to see the court dismiss my suit today.” 

The court dismissed the case without prejudice, which leaves room for Lewellen to file again after making changes.

In the ruling, the court also cited a Department of Justice memo. That memo said federal prosecutors will no longer target virtual currency exchanges, mixing services, tumbling services, or offline wallets for the acts of end users or for unwitting regulatory violations.

Lewellen rejected that point as enough legal protection. He said, 

”A non-binding DoJ memo is no substitute for real legal certainty.” 

Judge O’Connor also said the cases Lewellen relied on were not close matches to his own situation.

In addition, Lewellen had argued that developers behind software such as Tornado Cash and Samourai Wallet faced prosecution under similar laws. He used those cases to support his claim that developers like him face a real legal risk.

Judge O’Connor said those prosecutions centered on money laundering. He wrote, 

”By contrast, the core conduct here would be running a business.” 

He also said Lewellen denied knowingly transmitting criminal funds, which the judge described as central to the earlier cases.

Coin Center and supporters push for legal clarity

Lewellen said his legal team is reviewing its next steps. Coin Center, which backed the lawsuit, said the court’s reliance on the DOJ memo does not resolve the broader issue for software developers.

Coin Center executive director Peter Van Valkenburgh said, 

”The Blanche memo is not enough to secure their rights.” 

He and Lewellen called on Congress to pass the Blockchain Regulatory Certainty Act of 2026, introduced by Senator Cynthia Lummis in January. The bill would state that developers of non-custodial software who do not control user funds are not subject to money transmitter laws.