NEW YORK — Prosecutors informed a federal judge on Friday that they are contemplating criminal charges against certain employees of crypto venture capital firm Dragonfly Capital, including general partner Tom Schmidt, regarding their 2020 investment in the privacy tool Tornado Cash.
The exchange occurred between prosecutor Nathan Rehn and District Judge Katherine Polk Failla in the Southern District of New York (SDNY) during a recess in the ongoing trial of Tornado Cash developer Roman Storm. Storm faces charges including conspiracy to commit money laundering, operating an unlicensed money transmitting business, and violating international sanctions, which could lead to a prison sentence of up to 45 years if convicted.
The prosecution revealed numerous messages between Storm and two Dragonfly Capital partners, Schmidt and managing partner Haseeb Qureshi. These messages aimed to establish jurisdiction in New York, demonstrate that Storm and his associates profited from Tornado Cash, and illustrate frequent modifications to the tool’s user interface.
When Storm’s defense team suggested that Schmidt testify to clarify his interactions with Storm and the investment rationale, prosecutors declined to offer him immunity for any future prosecution, leading Schmidt to invoke his right to remain silent.
“Are you considering prosecuting everyone at Dragonfly?” Failla inquired of Rehn.
“Not everyone, but Schmidt and another individual,” Rehn replied.
The government subsequently requested that the judge seal that portion of the court transcript, which she agreed to do.
Qureshi defended Dragonfly’s investment in Tornado Cash, stating: “We firmly believe in Americans’ right to privacy, a significant unresolved issue in crypto. We stand by our investment. We had no control over Tornado Cash, no contact with malicious users, encouraged compliance with the law, and maintain that Tornado Cash has a lawful right to exist. Prosecuting a venture firm for a portfolio company’s alleged misconduct would be unprecedented, especially under these circumstances.”
Qureshi noted that Dragonfly has “fully cooperated” with the government’s investigation into Tornado Cash, which began in 2023.
“Bringing charges against Dragonfly years later would be outrageous, misaligned with the facts, and could deter investment in crypto and privacy technologies in America,” he said. “We don’t believe the DOJ would pursue such unfounded charges, but if they do, we will vigorously defend ourselves.”
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