At the heart of the dispute is 18 U.S.C. § 1960, a federal statute that criminalizes the operation of an unlicensed money-transmitting business. While historically applied to entities that physically hold and move funds for customers—such as Western Union or traditional banks—recent prosecutions by the Southern District of New York (SDNY) have expanded this definition to include developers of non-custodial software. These are tools that allow users to maintain control of their own assets while utilizing decentralized protocols. Lewellen’s brief contends that by targeting the creators of the tools rather than the users of the tools, the government is effectively criminalizing the act of publishing mathematics and logic, a move that he argues is incompatible with the American legal tradition.
The Core Legal Conflict: Code as Protected Speech
The primary argument presented in Lewellen’s brief is that software code is a form of speech protected by the First Amendment. This is not a new concept in American law; the precedent was famously established in the 1990s through cases like Bernstein v. Department of State, which determined that cryptographic source code is a form of expression. Lewellen asserts that his work—specifically the development of non-custodial crowdfunding software—is an exercise of this right.
By threatening developers with prosecution for "unlicensed money transmission" simply because their code can be used to move value, the government is imposing a prior restraint on speech. The brief highlights that Lewellen has a "well-founded fear" of publishing, maintaining, or even marketing his software because the Department of Justice has refused to clarify that non-custodial development falls outside the scope of § 1960. As SEC Commissioner Hester Peirce has noted, and as cited in the brief, the act of publishing code is an intellectual endeavor that should not be conflated with the physical act of moving money.
Furthermore, the brief argues that the current application of the law violates the Due Process Clause of the Fifth Amendment. Under the "void for vagueness" doctrine, a law is unconstitutional if it does not provide a person of ordinary intelligence fair notice of what is prohibited. Lewellen argues that the shifting definitions used by the DOJ leave developers in a state of perpetual legal peril, unable to discern where "software development" ends and "money transmission" begins.
Chronology of Regulatory Escalation
The road to the Fifth Circuit began several years ago as federal agencies shifted their focus from centralized exchanges to decentralized protocols. The following timeline illustrates the escalation of tensions between the developer community and federal regulators:
- August 2022: The U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctions Tornado Cash, a decentralized privacy protocol. This marked the first time the U.S. government sanctioned a piece of self-executing software rather than a person or entity.
- August 2023: The DOJ indicts Tornado Cash founders Roman Storm and Roman Semenov, alleging they operated an unlicensed money-transmitting business. Crucially, the indictment focused on their roles as developers and maintainers of the code.
- April 2024: Federal authorities arrest the founders of Samourai Wallet, Keonne Rodriguez and William Lonergan Hill, on similar charges. This prosecution sent shockwaves through the industry, as Samourai was a non-custodial service where users always retained their private keys.
- Late 2025: Following a period of intense lobbying and public outcry, the administration released the "Blanche Memo." While intended to provide some clarity on prosecutorial priorities, the memo was criticized by legal experts for being non-binding and failing to offer a statutory safe harbor for developers.
- July 2026: Michael Lewellen files his opening brief in the Fifth Circuit, seeking a pre-enforcement judgment to secure the right to publish his software without a money transmitter license.
The "Bet the Farm" Dilemma
A central theme of Lewellen’s filing is the concept of pre-enforcement review. In typical criminal cases, a defendant challenges the constitutionality of a law after they have been arrested. However, Lewellen argues that the stakes are too high for developers to "bet the farm" by breaking the law first and vindicating their rights second.
The threat of a felony conviction, which carries a potential five-year prison sentence per count under § 1960, is enough to force many developers to cease their work or move their operations outside of the United States. This "chilling effect" results in the loss of American innovation and the degradation of privacy tools available to the public. By seeking a declaratory judgment, Lewellen is asking the court to provide the "certainty of law" rather than requiring him to rely on the "noblesse oblige" or the shifting whims of prosecutorial discretion.
Supporting Data and Economic Impact
The uncertainty surrounding software development in the U.S. has led to a measurable shift in the global technology landscape. According to data from the 2025 Developer Report, the percentage of open-source blockchain developers based in the United States has dropped from 42% in 2018 to just 26% in early 2026. Many cited "regulatory hostility" and "legal risk" as the primary reasons for relocating to jurisdictions like Switzerland, Singapore, or the United Arab Emirates.
Furthermore, the economic implications of these prosecutions are significant. The decentralized finance (DeFi) sector, which relies heavily on non-custodial software, reached a Total Value Locked (TVL) of over $150 billion globally by mid-2026. U.S. developers who are sidelined by legal uncertainty are missing out on a market that is projected to grow at a compound annual growth rate (CAGR) of 25% over the next decade.
Coin Center, which has been instrumental in supporting Lewellen, argues that the current policy is counterproductive. By driving developers underground or overseas, the U.S. government loses the ability to engage with the creators of these technologies and forfeits its leadership position in the next generation of the internet.
Official Responses and Political Context
The Department of Justice has maintained that its prosecutions are necessary to combat money laundering and the financing of terrorism. In previous statements related to the Tornado Cash and Samourai Wallet cases, DOJ officials have argued that "functional control" of a system, even if non-custodial, can constitute money transmission if the developers profit from the transactions or provide a "service" that facilitates the movement of illicit funds.
However, the administration’s stance has been inconsistent. While the Blanche Memo suggested a more restrained approach, the DOJ has repeatedly refused to stipulate in court that the mere act of writing and publishing code is exempt from licensing requirements. This refusal is what prompted Lewellen’s lawsuit.
Legal scholars have noted that this case could be the most significant test of the First Amendment in the digital age. If the Fifth Circuit rules in favor of Lewellen, it would create a powerful precedent protecting developers across the country. Conversely, a ruling in favor of the government could embolden regulators to require licenses for a wide range of software activities, potentially extending to encrypted messaging apps or peer-to-peer networking tools.
Broader Implications for Privacy and Innovation
The outcome of Lewellen v. Department of Justice will resonate far beyond the cryptocurrency industry. At its core, the case is about the right to privacy and the right to build tools that enable that privacy. In an era of increasing digital surveillance, non-custodial software provides a vital check on both corporate and state power.
If developers are legally required to act as "gatekeepers" for the software they write, the very nature of open-source development will change. Open-source software relies on the ability of any individual to contribute to a codebase without assuming the liabilities of a financial institution. Forcing developers to obtain money transmitter licenses—which require expensive compliance programs, bonding, and state-by-state registration—would effectively end open-source contribution in the financial technology sector.
As John Adams famously declared, the United States is intended to be a "nation of laws, not of men." Lewellen’s brief is a plea for the court to return to this principle. By seeking a clear ruling on the limits of the government’s power, Lewellen is fighting for a future where innovation is governed by transparent rules rather than the unpredictable threats of federal prosecutors. The Fifth Circuit’s decision will determine whether the "speech" of the 21st century—software code—enjoys the same protections as the printed word did in the 18th century.
