The legal battle lines between software developers and federal law enforcement have shifted to the United States Court of Appeals for the Fifth Circuit, where cryptocurrency developer Michael Lewellen filed a comprehensive reply brief on Monday. Lewellen is pressing forward with an appeal against the United States Department of Justice (DOJ), arguing that a Texas district court acted prematurely when it dismissed his pre-enforcement constitutional challenge. At the heart of the litigation is the federal government’s expansive interpretation of 18 U.S.C. § 1960, a criminal statute governing unlicensed money-transmitting businesses. Lewellen contends that this interpretation places independent software creators under an immediate, credible threat of federal prosecution merely for publishing open-source, non-custodial tools designed to facilitate decentralized financial coordination.

The case has rapidly become a focal point for the broader digital asset and open-source software development communities. With legislative efforts such as the Blockchain Regulatory Certainty Act stalling in Congress alongside broader crypto-market reform packages, judicial intervention is increasingly viewed by legal scholars and civil liberties advocates as the primary defense against what they describe as prosecutorial overreach. As federal prosecutors continue to pursue criminal cases against creators of privacy-enhancing and non-custodial tools, Lewellen’s appeal seeks a definitive judicial declaration that writing and publishing software code does not constitute operating a money-transmitting business.

Background and Origins of the Litigation

The legal journey began when Lewellen initiated a pre-enforcement declaratory judgment action in the United States District Court for the Northern District of Texas. Rather than waiting for federal agents to execute a search warrant or issue an indictment, Lewellen sought judicial clarity regarding his upcoming launch of "Pharos," a non-custodial software application designed to enable decentralized crowdfunding without relying on trusted intermediaries. Under established administrative and criminal law principles, a pre-enforcement challenge allows individuals to test the legality of government enforcement policies when they face a genuine, credible fear of prosecution for exercising their First and Fifth Amendment rights.

Pharos is meticulously engineered to be non-custodial. In technical terms, this means Lewellen, as the publisher and developer, never takes possession, custody, or control of users’ funds at any point during a transaction or crowdfunding campaign. Instead, the software acts merely as a peer-to-peer communications tool, allowing users to interact directly with smart contracts on a public blockchain.

Despite the technical architecture of Pharos, federal prosecutors have increasingly targeted non-custodial developer communities by treating the creation of such software as equivalent to operating a traditional money-services business. The district court initially dismissed Lewellen’s lawsuit, concluding that he lacked legal standing because he could not demonstrate an immediate, credible threat of prosecution. This conclusion was heavily influenced by a policy memorandum issued by then-Deputy Attorney General Todd Blanche, which outlined internal DOJ enforcement priorities regarding cryptocurrency. Dissatisfied with the lower court’s dismissal, Lewellen escalated the matter to the Fifth Circuit.

Chronology of Key Events

The tensions underpinning Lewellen’s lawsuit are rooted in a series of regulatory guidelines and high-profile enforcement actions that have unfolded over the past several years:

• May 2019: The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, issued comprehensive administrative guidance clarifying that mere software developers who do not take custody of customer funds are generally not considered money transmitters under federal law.
• 2022–2024: The DOJ launched aggressive criminal prosecutions against developers of privacy tools and non-custodial protocols, most notably targeting the creators of Tornado Cash and Samourai Wallet. In these actions, prosecutors utilized 18 U.S.C. § 1960 to penalize developers for failing to register as money-transmitting businesses, despite those systems lacking user asset custody.
• Late 2024 / Early 2025: Michael Lewellen developed Pharos and filed a pre-enforcement challenge against the DOJ in the Northern District of Texas, seeking to protect his right to publish the software without facing felony prosecution.
• 2025: Then-Deputy Attorney General Todd Blanche released a policy memorandum detailing prosecutorial discretion and priorities within the DOJ. Following this memo, the district court dismissed Lewellen’s lawsuit for lack of standing.
• Monday (Recent Filing): Lewellen filed his reply brief in the United States Court of Appeals for the Fifth Circuit, challenging the district court’s reliance on the Blanche memo and maintaining that the DOJ’s statutory interpretation creates an ongoing, credible threat of imprisonment.

Core Legal Arguments Presented in the Fifth Circuit Brief

Lewellen’s latest appellate filing dismantles the government’s defenses through four primary legal pillars, addressing both procedural standing and substantive statutory interpretation.

Standing and the Credible Threat of Prosecution

The primary procedural hurdle in pre-enforcement challenges is establishing standing under Article III of the Constitution. The DOJ argued that Lewellen’s fear of prosecution is speculative and generalized because federal agents have not initiated an investigation against him or issued an explicit warning letter.

Lewellen’s reply brief counters that forcing a citizen to "wait around for the government to investigate or prosecute him" before seeking judicial review defeats the entire purpose of a declaratory judgment. Furthermore, at this procedural stage, appellate courts must accept as true the plaintiff’s well-pleaded factual allegations regarding how Pharos operates. Because those allegations show that the DOJ categorizes non-custodial software publishing as unlicensed money transmission, Lewellen faces a direct dilemma: either self-censor his constitutional right to publish code or risk federal felony charges carrying significant prison time.

The Divergence Between FinCEN and DOJ Interpretations

A central theme of the appeal is the stark contradiction between the Treasury Department’s FinCEN guidance and the DOJ’s aggressive prosecutorial posture. FinCEN’s 2019 guidance explicitly established that exercising control over customer funds is an indispensable prerequisite for classification as a money transmitter.

However, the DOJ has repeatedly bypassed or outright rejected FinCEN’s authoritative interpretations in court. During the prosecutions of Samourai Wallet and Tornado Cash, the DOJ took positions directly conflicting with FinCEN’s advisory framework. In his brief, Lewellen asserts that he was not required to seek a redundant advisory opinion from FinCEN because the DOJ has demonstrated a clear willingness to ignore FinCEN’s views when pursuing criminal indictments under 18 U.S.C. § 1960.

The Legacy of Tornado Cash and Samourai Wallet Prosecutions

The DOJ contended in its response brief that Lewellen cannot simultaneously claim to be a law-abiding citizen and express fear of prosecution under the legal theories applied in the Tornado Cash and Samourai Wallet cases.

Lewellen’s reply forcefully rejects this logic, pointing out that government overreach inherently relies on prosecutors misapplying statutes to lawful conduct. The DOJ’s interpretation of 18 U.S.C. § 1960(b)(1) stretches the statutory definition of "money transmitting business" to encompass software publication. Because the DOJ maintains that failing to register a non-custodial software publishing enterprise violates federal law, Lewellen faces an immediate exposure under subsections (b)(1)(B) and (C), regardless of whether his specific application mirrors the exact functionalities of privacy mixers or wallet providers prosecuted in the past.

The Insufficiency of the Blanche Memorandum

The district court relied heavily on the policy memorandum authored by then-Deputy Attorney General Todd Blanche to conclude that Lewellen faced no imminent danger. Lewellen’s brief dismantles this reliance on multiple grounds:

1. Timing: The Blanche memo was issued after Lewellen filed his lawsuit and therefore cannot retroactively strip him of standing that existed at the commencement of the litigation.
2. Discretion Versus Law: The memo outlines internal, discretionary enforcement priorities rather than formally altering the DOJ’s legal interpretation of 18 U.S.C. § 1960. Policy priorities can shift instantaneously with a change in administration or prosecutorial leadership, whereas statutory interpretations carry the force of permanent legal exposure.
3. Lack of Complete Disavowals: The DOJ has steadfastly refused to formally disavow the prosecution of non-custodial software developers. While government attorneys have occasionally stated in passing that "the mere creation and launching of software is not a crime," they continue to insist that publishing such software without registering with FinCEN constitutes a federal crime under their reading of the statute. Without an explicit, binding assurance that non-custodial software development does not violate the law, the threat remains active.

Legislative Context and the Failure of Statutory Reforms

The broader ecosystem surrounding Lewellen’s case has been marked by legislative stagnation. Industry advocates had high hopes for the Blockchain Regulatory Certainty Act (BRCA), which was introduced as part of broader legislative packages in Congress to establish clear regulatory safe harbors for developers of decentralized networks and non-custodial protocols.

However, legal analysts note that even if the most recent iterations of the BRCA had successfully passed into law, their protections were primarily regulatory in nature. They would have shielded developers from certain administrative compliance mandates enforced by regulatory agencies like FinCEN, but they left open dangerous ambiguities regarding federal criminal statutes. Specifically, the criminal liabilities outlined under 18 U.S.C. § 1960—particularly subsection (C), which prosecutors have utilized as a primary tool in cryptocurrency developer indictments—remained unaddressed by the proposed legislative language.

Consequently, legal experts emphasize that the burden of defining the boundaries of criminal liability for code developers has fallen entirely upon the federal judiciary. Cases like Lewellen’s represent the frontline of defense for technological innovation in the United States.

Broader Industry Impact and Economic Implications

The implications of the Fifth Circuit’s eventual ruling extend far beyond Michael Lewellen and the Pharos protocol. Observers across the technology, venture capital, and legal sectors warn that an adverse ruling upholding the DOJ’s expansive interpretation of 18 U.S.C. § 1960 could have a chilling effect on open-source software development throughout the United States.

If writing code that facilitates peer-to-peer digital transactions can be classified as operating an unlicensed money-transmitting business, software engineers, cryptographic researchers, and academic institutions could find themselves criminally liable for publishing standard cryptographic tools, decentralized communication protocols, and open-source financial utilities. Industry advocacy groups, including Coin Center, have continued to support Lewellen’s legal defense, framing the litigation as a vital defense of constitutional freedoms, developer rights, and the rule of law.

As the Fifth Circuit panel prepares to review the comprehensive briefs submitted by both parties, the technology sector watches closely. A favorable ruling for Lewellen would establish a much-needed judicial check against prosecutorial overreach, reinforcing the foundational principle that software code is a form of expression protected under the First Amendment and that criminal liability requires actual custody, control, and intent to transmit funds rather than the mere publication of neutral tools.