New York – Prosecutors told a federal judge in the open court on Friday that they were considering criminally charging certain Crypto Venture Capital Firm Dragonfly Capital, including general partner Tom Schmidt, for their investment in 2020 for privacy policy tool Tornado Cash.
The discussion between prosecutor Nathan Rehn and District Judge Katherine Polk Failla from the southern district of New York (SDNY) came in the midst of a break in the ongoing lawsuit against Tornado Cash Developer Roman Storm, who has been charged with conspiracy facing up to 45 years in prison.
In their case, the prosecution introduced a series of messages between Storm and two Dragonfly Capital Partners, Schmidt and CEO Haseeb Qureshi. In connection with the government’s case, the messages seemed to serve more purposes: to establish a proper place in New York (because Schmidt is based on Manhattan), to show this storm and his colleagues who are profitable from Tornado Cash and to show that they have made frequent changes in frontend or user interface, of the product.
But when Storm’s Defense Team raised the opportunity to ask Schmidt to testify to give context to his and Storm’s messages and explain the company’s rationale for investing in Tornado-contents-refused prosecutors to give Schmidt (as well as potentially another of the defense would be witnesses) immunity from his testimony that was used against him Fall to test in the storm.
“Are you looking at may have to prosecute everyone on Dragonfly?” Failla asked Rehn Friday.
“Not everyone, but Schmidt,” and another person, Rehn said, according to Inner City Press.
The government then asked the judge to seal the part of the transcription of the open court discussion that she agreed to do.
Qureshi went to X on Friday to defend his company’s investment in Tornado Cash and Writing:
“We deeply believe in Americans’ right to privacy, and the lack of it is still one of Crypto’s biggest unresolved problems. We therefore stand by our investment. We do not run or exercise any control over the Tornado contains, we had no contact with any malicious users, we always urged our portfolio companies to follow the law, and we maintain that Tornado money even has a legal right to exist,” Qureshi. “To charge a venture company for the alleged mismatch of a portfolio would be unprecedented, especially in these circumstances.”
Qureshi added that Dragonfly has “fully cooperated” with the government’s study of Tornado Cash, as he said began in 2023.
“After all this time-year-old, it is scandalous, as opposed to facts and would induce a cool effect on all investments in crypto and privacy retechnologies in America,” Qureshi said. “We don’t think DOJ would actually cause such absurd and baseless charges. But if they do, we intend to vigorously defend ourselves.”
