Cryptocurrency software developer Michael Lewellen has escalated his legal battle against the United States Department of Justice, filing a comprehensive reply brief on Monday in the United States Court of Appeals for the Fifth Circuit. The legal challenge centers on whether federal prosecutors can utilize 18 U.S.C. § 1960—a federal criminal statute originally designed to target illegal gambling and traditional unlicensed money-transmitting businesses—to criminalize the publication of non-custodial open-source code.
Lewellen is seeking a declaratory judgment to establish that the development and public release of "Pharos," a non-custodial software designed to facilitate decentralized crowdfunding, does not subject him to federal prosecution under the statute. The outcome of the appeal could establish a critical legal precedent for software engineers across the United States, determining whether writing code that interacts with blockchain networks can be prosecuted as a financial crime without proof that the developer ever took custody of user funds.
The appeal arrives at a time of heightened regulatory scrutiny and legal uncertainty for the decentralized finance sector. With federal prosecutors increasingly relying on novel interpretations of criminal law to target privacy and developer-focused tools, court interventions have become a primary mechanism for defining the boundaries of legal technology development.
Chronology of the Dispute and Pre-Enforcement Challenge
The legal confrontation began when Lewellen initiated a pre-enforcement challenge against the DOJ in the United States District Court for the Northern District of Texas. In his initial complaint, Lewellen asked the court to declare that publishing non-custodial software does not violate federal unlicensed money-transmitting laws.
However, the district court dismissed the lawsuit, concluding that Lewellen did not face a credible threat of prosecution. This determination was heavily influenced by a policy memorandum issued by then-Deputy Attorney General Todd Blanche, which outlined the agency’s enforcement priorities regarding cryptocurrency-related offenses. Following the dismissal, Lewellen’s legal team elevated the case to the Fifth Circuit, arguing that the lower court fundamentally misunderstood the nature of pre-enforcement challenges and the broad, unmoored scope of the DOJ’s statutory interpretations.
Monday’s reply brief represents the latest step in this appellate process, addressing the government’s response and reinforcing Lewellen’s position that he should not be forced to risk federal imprisonment just to obtain legal clarity.
Core Arguments Presented in the Fifth Circuit Appeal
Lewellen’s reply brief outlines four primary legal pillars contesting the district court’s dismissal and challenging the government’s litigation posture.
1. Standing and the Validity of Pre-Enforcement Challenges
The DOJ argued in previous filings that Lewellen lacks standing to sue because he has not been subjected to a formal investigation, subpoena, or explicit threat of enforcement. Government attorneys contended that his fear of prosecution is overly generalized.
Lewellen’s reply brief counters that this argument misapprehends the very purpose of a pre-enforcement challenge. Under established administrative and constitutional law, individuals do not need to wait until a criminal investigation is formally opened or an indictment is handed down to seek judicial review of a law that threatens their constitutionally protected or lawful activities. Furthermore, at this procedural stage, appellate courts must accept the plaintiff’s factual descriptions of how Pharos operates as true—descriptions that clearly place the software within the crosshairs of the DOJ’s expansive reading of the statute.
2. The Precedent of Prior High-Profile Prosecutions
To demonstrate a credible threat of enforcement, Lewellen points to recent, aggressive DOJ prosecutions against the developers of privacy-focused and non-custodial tools, specifically Tornado Cash and Samourai Wallet.
The DOJ attempted to dismiss these comparisons, arguing that Lewellen cannot simultaneously claim to be a law-abiding citizen while fearing prosecution under the same legal theories applied in those cases. Lewellen’s brief rejects this logic, noting that the government frequently overreads criminal statutes to capture conduct Congress never intended to criminalize. Because the DOJ maintains that creating and publishing software can equate to operating a money-transmitting business under § 1960(b)(1), Lewellen faces a direct, ongoing threat of being similarly targeted for failing to register with the Financial Crimes Enforcement Network (FinCEN).
3. Absence of an Official Disavowal of Prosecution
A central theme of the appeal is the government’s steadfast refusal to formally disavow the prosecution of non-custodial developers. While the DOJ has asserted in public statements that the mere creation and launching of software is not inherently a crime, it has stopped short of confirming that publishing un-registered non-custodial tools fails to trigger § 1960 violations.
The brief emphasizes that when the DOJ dropped certain specific charges in related cases, it explicitly maintained its broader legal theory that developers could still be prosecuted under registration-failure provisions. Without an explicit, binding assurance from the government that non-custodial software development falls entirely outside the scope of the money-transmitting statute, Lewellen maintains he is legally entitled to seek a judicial declaration of his rights.
4. The Limited Legal Effect of the Blanche Memo
The district court relied heavily on the memo issued by then-Deputy Attorney General Todd Blanche to conclude that Lewellen faced no imminent danger. Lewellen’s reply brief argues that this reliance was misplaced for multiple reasons.
First, the memo was issued after the lawsuit was filed and therefore cannot retroactively strip a plaintiff of standing. Second, the document merely outlines discretionary enforcement priorities rather than altering the executive branch’s formal legal interpretation of the statute. Because enforcement priorities can shift at any moment with changes in administration or policy directives, a discretionary memo does not provide permanent legal security against criminal indictment.
Regulatory Disconnect: FinCEN Guidance Versus DOJ Prosecution
The legal conflict highlights a stark and persistent disconnect between financial regulatory agencies and federal prosecutors.
In May 2019, FinCEN—the bureau within the Department of the Treasury specifically tasked with administering and enforcing the Bank Secrecy Act—issued formal guidance clarifying that mere software development does not constitute money transmission. FinCEN’s framework explicitly establishes that exercising control or custody over customer funds is an essential prerequisite for a platform or individual to be classified as a money transmitter. Because non-custodial software developers write code that executes autonomously without the developer ever holding, managing, or having access to user assets, they fall outside FinCEN’s regulatory perimeter.
Despite this clear administrative guidance, the DOJ has pursued aggressive criminal actions against developers of tools that do not take custody of user funds. By bypassing established regulatory definitions and utilizing criminal statutes to establish new rules of conduct, the DOJ has created profound uncertainty for the technology and blockchain sectors.
Legislative Stalemate and the Need for Judicial Clarification
The legislative branch has attempted to address these ambiguities through statutory reform, most notably via the Blockchain Regulatory Certainty Act (BRCA) and broader legislative packages like the Clarity Act. Proponents hoped these bills would draw a definitive line protecting software developers and blockchain infrastructure providers from unwarranted regulatory and criminal overreach.
However, legislative efforts have faced significant hurdles, and comprehensive reform has stalled in Congress. Furthermore, legal analysts and advocacy organizations like Coin Center have noted that even previous iterations of the BRCA contained limitations, often focusing primarily on civil regulatory compliance rather than immunity from criminal statutes such as 18 U.S.C. § 1960.
Because legislative solutions remain elusive, federal courts have been thrust into the role of arbitrating the boundaries of criminal liability for digital innovation. A favorable ruling in Lewellen’s Fifth Circuit appeal could provide a crucial judicial check against prosecutorial overreach, establishing binding precedent that technical creation and open-source publication cannot be arbitrarily redefined as financial intermediation.
Broader Implications for the Technology Sector
The Fifth Circuit’s eventual decision in Lewellen v. DOJ will carry significant implications well beyond the cryptocurrency community. If federal prosecutors are permitted to treat the publication of non-custodial code as an unlicensed financial business simply because third parties utilize that software to transfer value, the chilling effect on software development could be immense.
Open-source developers, encryption advocates, and software engineers across multiple disciplines rely on the principle that publishing code is protected speech and lawful engineering activity. By supporting Lewellen’s challenge, industry advocates aim to reinforce the rule of law, demanding that executive agencies adhere to statutory definitions enacted by Congress rather than reshaping criminal laws through aggressive litigation and discretionary memos.
As the appellate proceedings continue, the case stands as a defining legal battleground over the future of decentralized technology, open-source publishing, and the constitutional rights of American software developers.
