The Breakdown - Hung Jury Delivers Mixed Verdict in Roman Storm Tornado Cash Trial

Episode Date: August 8, 2025

In a closely watched case for crypto developers, a New York jury found Tornado Cash co-founder Roman Storm guilty of operating an unlicensed money transmitting business, while deadlocking on money laundering and sanctions charges. NLW unpacks the strange twists of the trial, the judge’s controversial rulings, and why the verdict sets a troubling precedent for DeFi. Brought to you by: Grayscale offers more than 20 different crypto investment products. Explore the full suite at grayscale.com. Invest in your share of the future. Investing involves risk and possible loss of principal. To learn more, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Grayscale.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ -- ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.grayscale.com//?utm_source=blockworks&utm_medium=paid-other&utm_campaign=brand&utm_id=&utm_term=&utm_content=audio-thebreakdown)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Thursday, August 7th, and today we are talking about the verdict in the Roman Storm trial. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, a hung jury leads to a mixed ending in the Roman Storm trial. For the past two weeks, the Tornado Cash developer has been on trial in the Southern District of New York. Prosecutors brought three charges, conspiracy to operate an unlicensed money transmitting business,

conspiracy to commit money laundering, and sanctions violations. The trial has been fairly convoluted and controversial. Early on, the prosecutors were criticized for introducing witnesses that seemed to have very little connection to Tornado Cash. Their main strategy was to parade a string of victims and convicted fraudsters before the jury to demonstrate that illicit use of Tornado Cash was widespread. However, the very first witness, the victim of a phony investment scheme, appeared to have only a very tenuous link to the case. The person who defrauded her had not used Tornado Cash to launder the funds.

Her only real evidence was that she emailed an unmonitored Tornado Cash email address asking for her money back, together with dozens of exchanges in crypto companies. Later in the prosecution's case, FBI chain tracers acknowledged that they couldn't prove her funds had ever touched tornado cash. The point was to demonstrate that Roman Storm was aware the protocol was used by criminals. However, it was never made clear what he could have done about that, given that the protocol was already deployed as an immutable smart contract. And that was only one in a long string of strange moments in the trial. Much was made of a t-shirt worn by tornado cash developers that depicted a washing machine, promoting the service as a way to, quote, clean your eth.

During the pretrial conference, the judge revealed that she and her clerks had been making Moss Isley jokes comparing Tornado Cash to the Star Wars City, known as a wretched hive of scum and villainy. Controversially, the judge ruled that it was of no relevance that Tornado Cash was non-custodial, refusing to allow that evidence into the trial. This would rule out relying on 2019 guidance from FinCEN, which instructed crypto developers that they didn't require money transmitter licenses if their protocol was non-custodial. The jury also wasn't allowed to hear that Tornado Cash continues to operate in the absence of its founding. Reinforcing that they have very little control over the autonomous protocol.

Those are only a handful of the big moments in a very contentious case. As the parties wrapped up their cases late last week, it was completely unclear if either party had driven their points home. The prosecution's case seemed a little slapdash, relying heavily on the insinuation that tornado cash was knowingly built as a tool for criminals. It was difficult to establish the sanctions violation charge, given the sanctions had been wound back earlier this year. The prosecutors never produced a smoking gun that Storm had knowingly collaborated with any criminals on money laundering. At best, they showed he acknowledged the illicit activity was taking place. The defense also didn't put forward much of a

case. Storm elected not to take the stand, which is a very typical choice in criminal trials. Defense witnesses were a smattering of crypto folks trying to flesh out the broader range of legitimate uses for tornado cash. Much of the evidence, though, was disallowed, particularly when it involved the tornado cash team offering help to hack victims and setting up compliance layers. The judge ruled that these efforts were entirely impotent and compliance theater, so would paint an inaccurate picture. That all left the jury with a very mixed impression of the case. In closing arguments, the prosecutors claimed that, quote, privacy became the cover story for tornado cash, not the goal, and that, quote, when the defense has privacy, what that really means

is hiding money for criminals. They asked the jury to focus on the underlying question, whether tornado cash had been designed primarily for illicit activity from the start. Basically, storm's intentions during the development of the protocol was the core issue for the jury to determine. The defense anchored their closing points on the idea that technology is always dual use. A cell phone is just as capable of organizing a crime as anything else. The defense told the jury, in order to be guilty, it is not enough to just know a criminal is using a product you make. The goal has to be furthering crime.

The jury retired to begin deliberations last Thursday, but things immediately went off the rails. Jurors ran late and one attempted to attend an all-day celebration of their grandmother's birthday party. Aside from that, the jurors asked for multiple clarifications from the judge and deliberations stretched into their fourth day on Wednesday. These are never a good sign for prosecutors, and Storm's demeanor lightened up significantly by this stage, joking with his legal team and frattenizing with supporters in the gallery. His legal team commented to the press that even if the jury returns a guilty verdict, they believe that they had a multitude of ways to appeal the outcome. On Wednesday morning, the jury reported that they would not be able to reach a unanimous

verdict on all counts. After some back and forth urging the jury to try again, the judge finally accepted a partial verdict. Storm was found guilty on the charge of conspiracy to operate an unlicensed money servicing business. The jury was undecided on the other two charges, conspiracy to commit money laundering and sanctions violations. This is still a very serious result for Storm and a very dangerous precedent to set for the crypto developer community. Storm will face up to five years in prison during sentencing. The judge refused the DOJ application to hold Storm in jail pending the sentencing hearing. She was unconvinced that dual U.S. Russian citizen was a flight risk commenting, he may appeal he has every incentive to stay in fight. There's a lot of

fighting left in the case before sentencing, and I think Mr. Storm will stay for it. Outside of the courtroom, Storm told reporters that this was his intention, commenting, it's a big win. The 1960 charges BS and we're going to fight it all the way. You know how President Trump said fight, fight, fight, fight, we'll do that too. The 1960 charge is the one relating to operating a money transmission business without a license. In a statement, U.S. Attorney for the Southern District of New York, Jay Clayton commented, the speed, efficiency, and functionality of stable coins and other digital assets offers great promise, but that promise cannot be an excuse for criminality. criminals who use new technology to commit age-old crimes, including hiding dirty money,

undermine the public trust, and unfairly cast a shadow on the many innovators who operate lawfully. This office and our partner agencies are committed to holding accountable those who exploit emerging technologies to commit crime. Now, as there was a hung jury on the two more serious charges, the DOJ can elect to take them to a second trial at a later date. The crypto community was in an uproar over the verdict. The Defy Education Fund issued a statement commenting, We are disappointed that the jury did not recognize that Storm should not

not be responsible for the actions of third parties he could not control. While it's understandable that the jury could not reach a decision on all the charges, as the government made many mistakes throughout and their case was not compelling, we hoped for a different outcome for Storm. The government's case targeting a software developer should have never been brought in the first place and remains fundamentally flawed. Tornado Cash is non-custodial software through which people engage in self-directed peer-to-peer transactions. Even the government acknowledges that Tornado cash developers did not and could not exercise control or custody over user assets. We will continue to support Storm as he appeals the verdict on Section 1960.

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their full suite of crypto investment products and invest in your share of the future. Now, the 1960 charge is the most controversial part of the case, as it's very narrowly about legal definitions. DoJ bringing this charge at all seemed to fly in the face of the 2019 FinCin guidance that provided a safe harbor for non-custodial defy. In April, Deputy Attorney General Todd Blanche issued a memo instructing prosecutors that the DOJ would no longer be pursuing 1960 charges against crypto companies in the absence of other wrongdoing. In essence, it seemed to many that these charges would never have been brought under the current government. Jake Trevinsky, the chief legal officer of variant fund,

tweeted, the storm conviction is unacceptable in the so-called crypto capital of the world. Here are the necessary steps to write this wrong and protect software to developers. 1. DOJ must accept the jury's refusal to convict on money laundering and sanctions and must not retry the case. Two, DOJ must dismiss the Section 1960 charge or else Roman must be pardoned. Three, Congress must amend Section 1960 to clarify that money transmission requires control of funds and does not apply to the developers of non-custodial software. There is no greater threat to crypto than DOJ's misguided war on developers, which started under Biden and must stop under Trump. This battle may have been lost, but the war will be won.

Financial Law Professor and Zcash advocate J.W. Verrett wrote, This is a mess. FinCEN guidance takes the opposite view of the law and the only count for which he was found guilty. Jay Clayton takes the blame as interim U.S. attorney and is now unconfirmable for every pro-crypto senator. Now, stepping back, this is obviously a dangerous precedent for crypto developers. Juan, a privacy advocate on Nillian network commented, please understand that if you work in crypto, this verdict has a direct impact on you. If anybody is telling you that the tornado cash verdict doesn't apply to you,

because you're not in privacy, they're clueless on the subject and you probably shouldn't listen to them anymore. As Peter Van Valkenberg of Coin Center explained, the verdict on money transmission emphasizes the very real threat to crypto developers who are just publishing software and websites. If the government can simply claim you are transmitting even while contradicting the FinCend guidance from 2019, juries have little to do but convict. And that's essentially the crux of the issue. The 1960 charge was almost entirely decided by the judge's ruling on interpreting the law. To a certain extent, developers can rely on Blanche's memo to the DOJ, instructing them not to pursue these charges, that's still extremely risky. Armani Ferranti, the founder of

Defi Protocol Backpack, wrote, was getting up to speed with the legal team this morning in light of the Tornado Cash ruling. Although the negative headlines might cause despair, DFIers should remain cautiously optimistic in light of the Clarity Act. It includes an explicit carve-out for a non-controlling blockchain developer to not be treated as a money transmitter. He's referring to the text of Section 109 in the Clarity Act draft, which includes the provisors that the protocol is open source and deployed in a manner that gives up control. Fronte continued, this last point is key.

Some might think that this is open to interpretation, but there are some very clear common sense ways to think about this. No multi-sigs, no centralized update authority, no unilateral ability to change margin parameters, mark price, liquidate, sequence, or modify market configurations. Code is freedom of speech, but there's no free lunch. Simply being on a blockchain isn't enough. We've seen enough decentralization theater over many cycles,

and the path is starting to become clear. Decentralize. This case was always going to be extremely consequential for Defi in the U.S. And the verdict frankly puts the entire industry up in the air. Jake Trevinsky is of the opinion that this is existential. Floppy disk and anonymous cypherpunk commenters suggested it's time to go back to the old ways of crypto posting. Lessons learned from the Tornado Cash case. One, self-custodial tools can be accused of unlicensed money transmission.

Two, never register a company. Three, stay anonymous and follow basic ops-sec. Four, support decentralized protocols that are unstoppable. Now, certainly that's one option, but it flies in the face of this administration's pro-crypto agenda. Under this ruling, it seems the vast majority of the DeFi ecosystem is in violation of the law. Mass arrests are unlikely, but the entire point of the crypto agenda was to define the gray areas and update laws to facilitate how crypto actually works. The industry could turn back to the days of anonymous founders and maximum decentralization, but that seems like a step backward. At the same time, the ruling

didn't provide any clarity around bad actors in the industry. For Storm to be held to account, that didn't happen either. He wasn't convicted for money laundering or sanctions violation, so the verdict does very little to discourage the next big crypto mixer. One takeaway is certainly just the need for clarity in all aspects of crypto. In many ways, this case was the crown jewel of the theory of regulation by prosecution. Both Storm and the DOJ expended huge resources to end up with a verdict that neither can be very happy with. In retrospect, the trial seems to demonstrate why it's vastly preferable to have purpose-built laws that address the issues in crypto directly, rather than shove the industry into ill-fitting existing regulations.

Even the conviction seems very tenuous. The judge openly questioned her own decisions, stating, I think the stability of the verdict is very much in play, if not before me, then before a reviewing court. I think the 1960 is perhaps the most interesting of the legal issues. Veteran crypto lawyer Jason Gottlieb is confident that decision won't survive an appeal, tweeting, Roman Storm's conviction for operating a unlicensed money transmission business is dangerous for all defy developers.

It's also just wrong as a matter of law, and I think it will be overturned. So then no clear guidance comes out of this lawsuit only a series of risks for crypto developers. They probably won't get charged in the same way as storm, but the risk is present. Michelle Corver, the head of regulatory affairs at A16-Z, wrote, The decision could have a wide-ranging and unintended impact on the blockchain ecosystem as a whole. The lack of regulatory clarity that has long plagued the crypto industry not only impedes innovation, it's dangerous. Now developers may fear their projects could run afoul of the law.

The result is misaligned with the goals of the current administration and jeopardizes its push to place the United States at the forefront of crypto innovation. Strikes me as just yet another reminder of why all this stuff in Washington matters so much. We cannot just rely on the courts to figure out what the hell we're allowed to do and not. For now, that's going to do it for today's breakdown. Appreciate you listening, as always, and until next time, be safe and take care of each other. Peace.