Dragonfly managing partner Haseeb Qureshi revealed that the U.S. Department of Justice (DOJ) will not bring criminal charges against the crypto venture firm, as Tornado Cash co‑founder Roman Storm’s federal trial in Manhattan neared its conclusion.

Qureshi, whose investment firm backed several blockchain startups, wrote on social media that federal prosecutor Nathan Rehn told the court July 28 that neither Dragonfly nor its principals were targets of the department’s investigation.

He called the public clarification “unprecedented” and “a clear violation of DOJ policy,” citing the Justice Department’s usual practice of keeping target information confidential. The development comes days after Qureshi publicly denounced the DOJ over targeting the firm for backing Tornado Cash in 2020 as part of Storm’s trial.

Storm, who co‑founded Tornado Cash in 2019 as an open‑source protocol to anonymize cryptocurrency transactions, is charged with laundering more than $1 billion and violating U.S. sanctions against North Korea’s Lazarus Group.

The trial, which began July 14 in U.S. District Court in Manhattan, has heard testimony from blockchain tracing experts and former Tornado Cash users. Closing arguments are expected later this week.

Tornado Cash was added to the U.S. Treasury Department’s sanctions list in August 2022, marking the first time a software protocol faced such action. Prosecutors allege Storm personally approved transactions for illicit actors, while defense attorneys argue that the protocol’s code, not its creator, should be judged.

Dragonfly invested in Tornado Cash in 2020 after obtaining an outside legal opinion that the mixer complied with U.S. anti‑money‑laundering guidance issued by the Financial Crimes Enforcement Network (FinCEN).

The outcome of Storm’s case could reshape how open‑source developers are held accountable for user activity. If convicted, Storm faces up to 45 years in prison, a sentence that critics warn could chill innovation in privacy‑enhancing tools.

Qureshi wrote:

“With that behind us, the focus should remain on Roman Storm’s trial, which is now nearing closing arguments as soon as this week. Its outcome will have massive implications for open-source software and privacy rights in America.”

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Crypto Journalist

Amin Ayan

Crypto Journalist

Amin Ayan

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Amin Ayan is a crypto journalist with over four years of experience in the industry. He has contributed to leading publications such as Cryptonews, Investing.com, 99Bitcoins, and 24/7 Wall St. He has…

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July 26, 2025

Dragonfly Capital may soon find itself in the crosshairs of U.S. prosecutors over its 2020 investment in Tornado Cash developer PepperSec, Inc., the firm behind the now-sanctioned crypto privacy protocol.

The venture capital firm signaled Friday that it would push back hard if formal charges are filed.

In a statement on social media, Dragonfly managing partner Haseeb Qureshi defended the investment, stressing that it was made in good faith after receiving legal assurances of compliance.

“We made this investment because we believe in the importance of open-source privacy-preserving technology,” Qureshi wrote. He added that legal counsel at the time found no regulatory red flags.

US Crackdown on Tornado Cash Sparks Crypto Privacy Debate

The controversy stems from the US government’s crackdown on Tornado Cash, a tool that enables users to obscure the origin and destination of crypto transactions.

Though the protocol was pitched as a decentralized privacy enhancer, it became a favorite among hackers and sanctioned entities seeking to hide digital footprints.

In 2023, the Department of Justice charged developers Roman Storm and Roman Semenov with money laundering and violating U.S. sanctions.

Storm’s trial is currently underway in New York and could result in a decades-long prison sentence. On Friday, prosecutors suggested Dragonfly itself could be next.

Qureshi dismissed the notion as an intimidation tactic. “We believe the government’s statement in court today was primarily to undermine a defense of Tornado Cash,” he said. “Bringing charges now would be outrageous.”

Tornado Cash has remained a legal and ethical flashpoint in the debate over privacy and regulation in crypto.

Its sanctioning by the U.S. Treasury’s OFAC in 2022 was a landmark moment, with authorities alleging it facilitated billions in illicit transactions, including funds tied to North Korean hackers.

Despite the sanctions, Tornado Cash has shown surprising resilience. Flipside Crypto reported $1.9 billion in deposits through the platform in the first half of 2024, indicating continued demand for anonymity tools in blockchain transactions.

No Final Ruling Needed After Tornado Cash Removed from Sanctions List

In March, the US Treasury Department argued that no further court ruling is necessary in the legal battle over its sanctioning of crypto mixer Tornado Cash, citing its recent removal of the platform and associated addresses from the sanctions list.

As reported, a developer has ported Tornado Cash to the MegaETH blockchain’s public testnet, enabling private transactions on the high-performance network.

MegaETH, which recently launched, boasts a throughput capacity of up to 20,000 transactions per second.

The developer, known pseudonymously as Gunboats, said the idea was sparked by the U.S. Treasury’s recent removal of Tornado Cash addresses from the OFAC sanctions list, following a court ruling earlier this year.

Venture capital firm Dragonfly said Friday that the U.S. government is weighing potential charges over its 2020 investment in PepperSec, the developer of Tornado Cash, marking a rare instance where federal prosecutors may target a venture investor for backing a crypto project.

In a detailed statement, Dragonfly managing partner Haseeb Qureshi called the prospect of such charges “outrageous” and legally unfounded.

He said the firm invested in PepperSec in August 2020 after securing an independent legal opinion that confirmed Tornado Cash, as designed, complied with federal guidance issued by the Financial Crimes Enforcement Network (FinCEN) in 2019.

Qureshi further stated that Dragonfly believed strongly in supporting open-source privacy-preserving technologies and continues to stand by that investment.

The development comes days after the prosecution faced a setback in developer Roman Storm’s trial after the FBI failed to connect funds stolen from a key witness to Tornado Cash.

Tornado Cash, launched in 2019, is a decentralized protocol that mixes cryptocurrency transactions to obscure sender and recipient details. The tool, while valued by privacy advocates, has been accused by U.S. authorities of facilitating money laundering for hacking groups, including North Korea’s Lazarus Group.

The Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash in 2022, but subsequent court challenges forced the government to scale back certain aspects of its sanctions, a development Dragonfly cited as proof of the protocol’s legal standing.

Qureshi said that Dragonfly neither operated Tornado Cash nor had any contact with illicit users, emphasizing that it offered PepperSec the same level of guidance it provides to all portfolio companies.

He also revealed that the firm fully complied with a Department of Justice subpoena issued in 2023 and was told it is not a direct target of the ongoing investigation.

According to Qureshi, the government’s mention of Dragonfly during a recent court proceeding was an attempt to weaken Tornado Cash’s defense, potentially by complicating testimony from Dragonfly co-founder Tom Schmidt.

He argued that prosecuting an investor over the conduct of a portfolio company years after the fact would have a chilling effect on venture funding for privacy technologies and blockchain innovation.

Dragonfly’s statement comes amid heightened enforcement efforts against crypto privacy tools, which regulators view as a growing risk for illicit finance. The firm said it remains confident that the DOJ will not pursue charges, but it pledged to “vigorously defend” itself if necessary.