Unchained - The Chopping Block: Tornado Cash on Trial, Crypto Privacy in Crisis, and Robert’s LQR House Takeover - Ep. 880

Episode Date: August 2, 2025

Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest in crypto. In this episode, things get personal as Haseeb and Tom break their silence on the DOJ’s shocking threat to criminally charge Dragonfly over its early investment in Tornado Cash. With Roman Storm’s trial nearing its conclusion, the crew unpacks the unprecedented legal risks facing developers, investors, and privacy protocols and what it means for the future of crypto in the U.S. As Ethereum celebrates its 10th anniversary, a storm brews in court: Samourai  Wallet founders plead guilty, the DOJ backpedals on Dragonfly, and Roman Storm faces decades behind bars for writing code. Robert recounts his short-lived microcap M&A adventure (aka the Liquor Store Fiasco), and the gang reacts to a dramatic regulatory about-face from the SEC’s new crypto-friendly regime. Is financial privacy now a crime? Will U.S. law catch up with crypto code? And what happens when TradFi tries to CT a public company? This episode hits hard — and nothing is off limits. Listen to the episode on Apple Podcasts, Spotify, Pods, Fountain, Podcast Addict, Pocket Casts, Amazon Music, or on your favorite podcast platform. Show highlights 🔹 Dragonfly Named in Court – Haseeb and Tom break their silence after the DOJ threatens criminal charges over Dragonfly’s Tornado Cash investment. 🔹 Roman Storm on Trial – The Tornado Cash co-founder faces up to 45 years as the government tests the limits of crypto developer liability. 🔹 DOJ Walks It Back – After a media firestorm, prosecutors publicly reverse course and say Dragonfly is not a target. 🔹 Samourai  Wallet Pleads Guilty – Another privacy project folds under pressure — and possibly to bolster the Tornado Cash case. 🔹 Privacy Protocols Under Siege – The crew asks: Is building immutable software now a criminal act in the U.S.? 🔹 Tarun Breaks Down Autonomous Code – Why the government’s case against smart contracts reveals a deep misunderstanding of how DeFi works. 🔹 Robert’s Liquor Store Saga – CT’s favorite meme investor explains how he tried to take over a public company… and got mega-diluted. 🔹 SEC’s Project Crypto Leaks – Paul Atkins lays out a sweeping vision for crypto-friendly regulation and software protections. 🔹 Crypto’s Legal Future Hangs in the Balance – From subpoenas to policy pivots, this episode explores what’s next for developers, investors, and privacy itself. Hosts: ⭐️Haseeb Qureshi, Managing Partner at Dragonfly ⭐️Robert Leshner, CEO & Co-founder of Superstate ⭐️Tarun Chitra, Managing Partner at Robot Ventures ⭐️Tom Schmidt, General Partner at Dragonfly  ⁠Disclosures⁠ Links: American Leadership in the Digital Finance Revolution, by Paul S. Atkins, SEC Chairman https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125  Timestamps 00:00 Intro 01:58 Background on Tornado Cash 03:50 Legal Challenges & Sanctions 06:36 DOJ's Actions & Dragonfly's Response 11:25 Implications for Privacy & Crypto 27:06 Samourai Case & Broader Implications 33:37 Robert's Liquor Store Saga 37:17 LQR House Challenges & Legal Issues 46:05 Lessons Learned from the LQR House 50:01 SEC's New Crypto Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

A criminal case is not the place to adjudicate a policy question. If you want to say that we believe the national security interests outweighs the individual's privacy interests, okay, go pass a fucking law that says that. And then make it very clear to everybody involved what the law is supposed to be. But if the law that you have passed does not say that. If the guidance that you have given does not say that, the way to adjudicate this is not through a criminal case. Not a dividend. It's a tale of two pawn. Now, your losses are on someone else's balance.

Generally speaking, air drops are kind of pointless anyways. I'm in the trading firms who are very involved. I like that 8 of the ultimate policy. DFI protocols are the antidote to this problem. Hello, everybody. Welcome to Chauvinblock. Every couple weeks, the four of us get together and give the industry insider perspective on the crypto topics of the day. So quick intro, as first you got Tom, the DFI Maven and Master of Memes.

Hello, everyone. Thanks you got Robert, the Cryptoconisurer and Tsar of Superstate. Bonjour. And we've got Tarun, the Giga Brain and Grand Puba at Gontlet. Yo. And finally, I'm a sieve, the head hype man at Dragonfly. So we are early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping blocks at XYZ for more disclosures.

So Ethereum just turned 10 years old. At the same time, it's a kind of weird mood to celebrate because at the same time that Ethereum has just turned 10 years old, we also have a very important court case that's currently going on, which is the case of Roman Storm. So Roman Storm, of course, is the creator of Tornado Cash. And this is a weird episode because we, two of your co-host, are very central to the story of what took place in the Tornado Cash case. So before we get into the story, I think Robert and Teroon decided that they were going to go offline and sort of go privacy preserving in the spirit of Tornado Cash. But so I'm going to give a little bit of background on the Tornado Cash case, as we're going to give a little bit of background on the Tornado Cash case, as well as what happened over the course of the last week.

So Tornado Cash was originally founded in 2019 by Roman Storm, Roman Seminov, and Alexei Perzev. It's a privacy preserving protocol built on Ethereum, uses zero knowledge proofs and all sorts of fancy cryptography magic. It's a non-custodial privacy solution on Ethereum. It was originally funded by an Ethereum grant. Roman Storm himself is a Russian emigrant, but a naturalized American citizen, who used to work at Amazon before he built the protocol and brought it to the light of day. So Dragonfly, we were the seed investor into tornado cash. Tom and I knew Roman from the very early days.

I think you first met him at the, I think it was I think it was I think it was Denver where he originally built the protocols that right? Yeah, something like that. Yeah, yeah. So we met him in the very early days. We thought what he was doing was very important. And so we decided to invest in Trinternator Cash way long time ago back in 2020. And we invested at the time that we invested,

Vincent had very recently given out this guidance about, basically about, what the rules of the road were around money services businesses and around, you know, sort of MSB, not just money services businesses, but also the Bank Secrecy Act and what the compliance requirements were for projects that were being built within crypto. And the guidance they give at the time is that if you're building something that's non-custodial where the builders of the protocol don't have direct control over funds, then you do not have bank secrecy Act requirements. You don't have to do KYC, AML.

And people thought at the time, okay, well, this kind of sort of includes things like Zcash, Manero, these very, very well-understood privacy protocols that existed from the very early days of crypto. You know, back when I first got into crypto, these things already existed. And so Tornado Cash was built very much in the spirit of this guidance that was given by Finsan back in 2019. And we got a legal opinion at the same time analyzing Tornado Cash because we knew that we wanted to make very, very sure that this was on the right side of the law at the time that we invested. Well, fast forward, Tornado Cash in 2022, under the Biden administration, was indicted.

Well, sorry, they were not indicted first. First, OFAC, which is the Office of Foreign Ascent Control, which is what gives sanctions, sanctioned tornado cash. Now, this was unprecedented because we've never seen sanctions come down on a protocol before. But they sanctioned not just the accounts of North Korea, which at the time used tornado cash in the Ronan hack, but they also sanctioned the contracts themselves. Now, the contracts or Turner Cash were immutable. They were not controlled by anybody.

They were decentralized, immutable, smart contracts that lived on Ethereum. But OFAC nevertheless sanctioned them. Now, these sanctions were immediately challenged. And this challenge was backed by Coinbase, as well as a bunch of privacy advocates such as Coin Center and Preston Van Lund, who's a very famous Ethereum community member. And these sanctions were overturned by the Fifth Circuit in 2024 as being unconstitutional and an overreach of the government to try to sanction a decentralized protocol. Okay.

But then later in 2022, soon after the sanctions, Roman Storm himself, who was based in Seattle, he was indicted. He was indicted by the Southern District of New York under charges of conspiracy to engage in money laundering, conspiracy to engage in unlicensed transmission of money, and the violation of sanctions under AIPA. So he's facing a maximum of, I believe, upwards of 30 years in prison for the charges of having basically built this immutable, decentralized privacy protocol that North Korea used. Now, many people in the crypto community have taken up the cause of Roman Storm. He's widely seen now as being this cause-celebrb around the rights of software engineers and software developers to build protocols that are used

freely by individuals who want to protect their own privacy. He's received millions of dollars in donations toward his court case, as well as support from amicus briefs on his behalf in the court case in SDNY, from Coin Center, from the EFF, the Electronic Frontier Foundation, from Paradigm and a number of other groups. So this case is currently winding its way through SD&Y. It started a few weeks ago, and it's now nearing its final innings. The trial was basically set to conclude today, but the closing arguments were yesterday, jury deliberations began today, but the jury did not come to a verdict yet.

and because of the storm that's taking place in New York, a very violent storm that's taking place right now, the jury went home early, are not convening tomorrow, and so we're going to hear the verdict on Monday. Okay. So then comes the part where we enter the story. So we, of course, were investors in tornado cash. And when tornado cash got indicted,

soon after we received a subpoena from the Department of Justice. We came and worked with them and had many discussions with them over the years, to help them understand our role in the investment that we made into Trinado Cash. It became very clear that we were not a target in their investigation, and they were trying to understand how Turner Cash worked, what our role was with it, and we were very happy to comply because at the end of the day, we didn't believe that we did anything illegal,

and we believed that fundamentally our investment in Toronto Cash itself was legal. On Friday, last Friday, in the middle of the case, as the prosecution was winding up their arguments, they stated in open court on Friday that they were contemplating bringing charges against Dragonfly and its principles. And when I say charges, I mean criminal charges. Now, this, two things that were notable about this. One is that this is absolutely against DOJ rules.

The DOJ is not allowed to ever comment on a public case against anybody else or about any pending charges in a criminal case with the media present. The rules are that if they want to comment on any other investigations into any other party, they're supposed to clear the court. Obviously, there's a high profile case, so there was a lot of media in the room, there was to clear the court and have a private colloquy with the judge. They did not do that. They made the statement in open court, and of course, they claimed that they were, one thing of whether or not this was even correct the way that they stated this, but then they claimed that they were contemplating charging dragonfly, that they were charging dragonfly basically for investing into a company or into a

protocol that may have been accused of wrongdoing, which, to be clear, has no precedent ever in American history that has never ever happened, whether it's, you know, you think of Enron, you think of Theranos, you think of FTX, never, ever has there been any indication that an investor can be charged for the conduct of a potential investment, to say nothing of the validity of the underlying charges. So this on Friday kicked off a firestorm. So immediately we heard about this in the press. We were like, wait, what the fuck? There was media reporting that all of a sudden, Dragonfly is going to be charged for the investment in tornado cash quickly made its way around the world. We went on Twitter. We responded. We said, this is absolutely outrageous. This is totally not correct. The DOJ has never

told us this. And we made very clear that if the DOJ were to bring charges, that they would be meritless and that we were planning to defend ourselves. Like I said, kicked off a firestorm. everybody we know was talking about this. Then by Monday, presumably after this made its way around the world, the DOJ went and read into open court first thing in the morning that the media reports that they were planning to charge people at Dragonfly were incorrect and that they were not planning to bring charges and that we were not targets in their investigation. So for whatever reason, and I'm sure we're going to learn more about this later, they completely backtracked in the story that they gave to the press on Monday morning. But it was a pretty insane weekend for

Tom and I, and for everybody, a dragonfly, trying to understand what the fuck was going on in the notion that we ourselves are going to be criminally targeted. So all of that being said, Roman Storm ultimately is the one who actually is facing these criminal charges. And the jury is in the process of deliberation, and we still don't know which way it's going to land. Many people who I've spoken to believe that it's very likely that even if he does get charged, that he has a very, very strong case on appeal. But of course, that appeal is likely to take years and at the end of the day, it's going to be even more damage psychologically and monetarily and reputational to Roman Storm, who, you know, he has a young daughter, if he has to continue

fighting this fight that he's already been fighting for the last few years. So I'll stop there. I've been monologuing for a long time, and I'm also exhausted because, you know, I haven't slept very much in the last week, to be honest, just because of how crazy this whole experience has been. I was reading the trial transcripts. They come out every night soon after the trial took place, because unfortunately I'm not in New York, so I couldn't be there to actually witness the case.

Up until this time, you may have all noticed that we didn't talk very much about the Trinacche case. And a big part of the reason why we didn't talk about it is that when we were subpoenaed by the DOJ, we were asked to keep the subpoena quiet and not to talk about the investigation by the DOJ. And we were also advised by our counsel not to say anything, not to comment publicly on the case and not to put anything out there just because of the riskiness

of the entire situation. But now the DOJ has dredged all this up and, you know, sort of made it a public affair. Now here we are. So I'm going to stop there. Tom, obviously, you are also very much at the center of this story. I'll just open the floor to you. First off, thank you everyone for all the support. Thank you all my free Tom fans and everyone who walked out of school on Friday to support me. I mean, I think you, you recapped a lot of it. So much of it, this has been frustrating. Obviously, I think the merits of the case are absurd. Like, you know, just when you look at the actual fact pattern,

it just doesn't make any sense why Roman would have liability in my mind or how the jury could find him, but that's kind of beside the point. And it's one of those things where there's just the power of the government is so lopsided and asymmetric. And even, as you sort of mentioned, there's this. you know, sort of idea that, well, you know, truth will, you know, find its way to the light. And, you know, ideally if you're, you know, innocent, that will sort of be shown in court. But the process of getting there is so treacherous and long and expensive and just very active, like,

pointing the big gun of the government at someone is enough to be extremely damaging. And so it's, it's frustrating to feel like the government is not acting in good faith. there's weird personal hangups probably where, hey, this has been a big case and they've spent a bunch of time and their own personal reputation into it. And it seems like that's kind of what's driving it. And so it's just really kind of very blackpilling to think that like ultimately you have this view that maybe you're taught in school of here's how checks and balances work in different branches of the government and here's how it's supposed to operate.

But ultimately these are people and people are very flawed. And you sort of see those come through. in the way that they act. So it's, yeah, it's just been frustrating to be watching this thing unfold. So there was a famous memo that went out, the Todd Blanche memo, I'll also call the Blanche memo, which I think it was just a few months ago after the Trump administration came in, that the deputy attorney general, Todd Blanche, wrote a memo to all of the DOJ,

basically saying that, like, hey, we are no longer going to be prosecuting the sort of victimless crimes within crypto of, you know, non-registration or non-compliance type crimes. times, like, these should not be criminal. We should not be using DOJ resources to go after these. We should go after people who are, you know, the real bad guys, quote unquote, right? So like the sort of the cartels and, you know, these, these groups that are actively hacking people or actively, you know, engaging in harm. And the core of the question behind Tornado Cash was this question of, did they have an obligation, an affirmative obligation, to engage in, you know, AML, KYC on the

tornado cash platform, right? And that was, the essence of what the, the, the, government argued in their closing arguments is that they brought some witness on the stand, and that witness stated that tornado cash could have had a central registry of all of their users. They could have had a login, like a username password system, and they could have had a central registry where they were checking, is this a good guy or a bad guy that's using this stuff? And if so, are we going to de-anonymize them and report them to the government? And like, you know, issue suspicious activity reports, presumably. What the government described, which I think was really rebutted by Matthew Green, who was one of

the expert witnesses for the defense. But what the government described is not a privacy protocol. What the government described is the same as any other. What the government described is like Coinbase, right? They were saying, like, why isn't Tornado Cash Coinbase? And the answer is that's not why Tornado Cash was created. It was not meant to be Coinbase. If it is legal for you to use WhatsApp or for you to use signal or for you to use one of these things such that, you know, we talk so much about how Apple is so respectful of privacy, well, the sense in which Apple is respectful for privacy is that Apple itself cannot open your phone. Apple itself cannot go retrieve your eye messages and tell the FBI or the government what you said and when you said it.

That right, we obviously understand why someone would care about that and why it, you know, unlike the way the government is framing this case, we obviously understand why it's not just criminals who would care about the right to have that sort of privacy. And so what frustrates me so much about this case, and I completely agree with you, is that there's such an asymmetry of power between the government and the individual. And that's always true. And it's a big part of the reason why our counsel was very, very clear to us. Do not fucking say anything. Do not say anything about this case until you are very, very clear that you know all the facts. And they also said, look, until you are absolutely certain that the government is satisfied that they have the case

that they want, you do not want to convince them that you're an enemy. And we said, okay, you know, I see, I see, I see the wisdom of that because you can see how just even the accusation that you are doing something wrong, even if you believe that you have the law on your side, it's so lopsided against you. And so it's, it's been, it's been really painful to, to watch this whole process unfold because, you know, we've, we've both learned so much about how this works over the last several years of having seen Roman, who, you know, when we were just building. building dragonfly in the very early days, in our first fund, you know, back in 2019, 2020, one of the very first teams that we supported and that we helped to build what was ultimately, you know, originally just a little idea at a hackathon into what at one point was one of the biggest privacy protocols in Ethereum. And the claim that he made that, look, I don't control this thing. It's an immutable protocol that we set out into the world

and that has a life of its own. If the government did not believe him, which you can see in their closing arguments, they made very clear. We don't believe Roman. We think that it was a farce, that he wasn't in control of this thing. If you didn't believe him then, knowing that Tornado Cash still exists and still works and has not stopped operating since Roman was indicted by the DOJ, and obviously it stopped working on it, when the sanctions were dropped, sorry, after the sanctions were imposed, and even after the sanctions were dropped, Tornado Cash continued operating all the same, which, if there was ever any proof that this thing is basically just open source code, that would be it in my mind. So I'm sure that we're going to have more to say when the verdict actually does drop.

And I think this case very clearly is going to have massive implications for privacy, for the rights of developers, and for what ultimately is going to happen in whether entrepreneurs are still going to feel the courage to be able to build privacy preserving protocols and whether as Americans we're going to have the right to have privacy on chain, to have financial privacy, not intermediated by centralized parties, that all I think is really going to come down to what happens in this case. So I'll stop there.

Tourin and Robert, if you guys want to come back, de-anonymize yourselves. Deanonymized. Well, first off, I mean, the entire crypto industry is behind Dragonfly. It's behind Rome. And this, you know, really is a test of the principles of crypto. Just to go back to your sort of like, you know, ending thoughts on this, it seems incredible to me that the government wouldn't and couldn't understand how fundamentally a smart

contract can operate autonomously. When you talk about Apple as an example, you know, they genuinely can't access your messages or the content of your phone, right? Does the government believe them? maybe because they have a bigger brand and a bigger market cap, Bitcoin is genuinely a great example of a decentralized protocol that's tamper-proof, that's, you know, controlless. Does the government believe that Bitcoin is autonomous at this point?

I don't know, maybe because it's grown to such a scale. But there's very objectively factual systems that are operating, autonomously at this point. And, you know, the best parts of Defi are the ability to create something that is autonomous that runs despite or in spite of or regardless of, you know, the people that originally built it. We've seen it done successfully many times. We've seen it done correctly many times.

And to me, that's just the part that's flabbergasting is, you know, as someone who builds in the space, like I know that a smart contract can operate autonomous. I know that a blockchain can operate autonomously. I know that even a centralized thing can operate in a way that preserves privacy. And so I think it just shows a lack of understanding of what's actually getting built. And as someone who's a builder, it's frustrating to see that lack of understanding translate into criminal charges before they get their facts straight. Yeah, I think the only thing I can add really, obviously echo all of the sentiments pretty strongly is that, you know, It also is kind of crazy to go after an application that I think was like, you know, at the time,

probably one of the most innovative usages of a new technology that someone used on chain. This wasn't just like I copy pasta an existing smart contract or, hey, I took something that exists in traditional finance or somewhere else. You actually took advantage of a lot of on-chain properties, properties there are knowledge proofs. A lot of like stuff where this was sort of. of in a lot of ways, like the first of its kind product to exist. And like the idea that you want to stifle innovation in these fields by this type of regulatory action to me is this like unconscionable in some ways. It just feels like it's like the bad actor is North Korea. The bad actor is not the innovation.

Innovation also preserved privacy, I'm sure, for tons of people who needed the financial privacy. in ways that you might not predict. And maybe it's people in war-torn regions, people who have kind of no access to other capital. And I think the idea that you kind of destroy innovation while also kind of stepping on a tool for sovereignty is sort of, yeah, unconscionable in some ways. Our country was founded on the Federalist Papers.

which were the original justification for the Constitution. And the Federalist papers were written pseudonymously. The notion that individuals sometimes need the ability to operate privately for the greater good of society, that's long been well understood in American tradition. And like the one solace that I have, again, kind of in the wake of this 10th anniversary of Ethereum, is that one of the things that I learned very recently, is that the beacon chain staking contract was actually deployed by an address

that was funded by Tornado Cash, which means that now Tornado Cash is basically baked into Ethereum itself. So no matter what happens in this case, and obviously we are all hoping that Roman prevails, tornado cash itself is going to live on. And of course, it can't not live on because of the fact that the contracts themselves are immutable.

Yeah, but to your point, I mean, it is baked into the fact of Ethereum, right? And it is a tool. At the end of the day, I mean, I know I'm repeating things that most people probably already know and have probably already heard or probably thought about, you know, at some point. But at the end of the day, it's a tool. And tools can be used by good people and tools can be used by bad people, right? It's clearly used by good people, right? Like, it has been used by people who are creating the beacon chain of Ethereum. It has also objectively been used by bad people. Lazarus has used tornado cash. But guns and cars and fertilizer and all these

things have been used by bad people too, right? All these things are tools. And at the end of the day, there's the question of, are you building this for good people or for bad people? And I think the original intent behind Tornado Cash is to build it for good people, not for bad people, but for good people who genuinely need and want privacy in crypto. I mean, the average user of crypto is frankly terrified that people on the internet are going to find out who they are, how much money they have and hit them over the head with a wrench to try to take their crypto. Anonymity is incredibly core to the idea of having censorship-resistant wealth. And there's a lot of people who are doxed and don't care. Like everyone on the show, everyone knows who we are. Everyone knows we have crypto,

right? It's a risk we're really forced to take. But the majority of the investors in the space don't want to take that risk. Nobody wants the risk that someone shows up your house with a rich, right? That risk sucks. And so the tool of having privacy fits very closely with what's happening on the ground floor of this space. And as I understand that, you know, tornado cash is really the same as anything else that's built for the good people, knowing that bad people use, bad people use iPhones, right? And the privacy preserving tech, and they use signal and all these things. But it's a necessary tool for the majority of people that have crypto wealth that don't want other people to be able to tie it back to them as easily. And maybe at some point we'll find

privacy preserving tools that work. And maybe there's the right systems for this. But, you know, the system seems broken at the ground floor, the ownership and position of crypto and the risks that people have to take. I mean, what's frustrating about this case is that at the end of the day, you know, reasonable people can disagree. about what should the rules be around what kind of financial privacy and when and what size and whatever. But a criminal case is not the place

to adjudicate a policy question. If you want to say that we believe the national security interests outweighs the individual's privacy interests, okay, go pass a fucking law that says that and then make it very clear to everybody involved what the law is supposed to be. But if the law that you have passed

does not say that, If the guidance that you have given does not say that, the way to adjudicate this is not through a criminal case. That's what I think is most outrageous about what's happening in the train of cash case. I mean, it's also telling when like the biggest critics, people who really don't like crypto like Molly White are like, this is crazy. You know, like I think there's almost a, there's almost this like, at least, you know, in the myopic view I might see. There's almost a universal disagreement with this idea that like the software itself was the problem. And that should be prosecuted in perpetuity. And I think that seems to be from software developers, especially those who don't like crypto also have found this a rallying cause.

So yeah, I feel like we already adjudicated this. Like this is literally like the cypherpunk, you know, cases, right? In the 90s or an RSA, like we've already done this in the past. And I just don't even know why we're even having this conversation. again, it feels very frustrating to feel like the same old arguments get trotted out. And it's weird also to see, I mean, speaking of privacy, sort of the weird parallel universe obviously going on in the UK right now with the Online Safety Act. And just like, it's just very tiring to kind of keep arguing against the same points over and over again. So at the same time as Turner Cash's case is going on, there was also

another criminal trial that ended up reaching a close in the case of Samurai. wallet. So Samurai wallet was a very large Bitcoin wallet that also used a, I think it was like some kind of coin join type protocol in order to anonymize transactions that were going through this wallet by default. Now, this was also non-custodial. So, you know, the samurai wallet themselves were not a party, you know, whoever was running this, they weren't actively doing anything. They just released this software. And it was non-custodial in nature. But they were charged with running an unlicensed money transmitting business and conspiracy to launder money. They were also in the same district, Southern District of New York, and they ended up,

originally they were pleading not guilty, and that I believe it was just yesterday that they entered into a guilty plea. And basically, it looks like what happened was the DOJ offered them a deal. And seemingly in connection with the Roman Storm trial, perhaps worried that the trial was not going their way, or that they were creating all this bad press of which, you know, me, we may have been some small part of that bad press, that they wanted to not see another trial take place or maybe just take some risk off the table. And so they, they agreed to a deal that would result in, I believe, five years for the money transmission charge and for the other charges to get

dropped. And I think a few hundred thousand dollar fine as well as remission of funds that they earned in creating this. So I think many people, like many people have been very disappointed. to see this loss because I think at the time, Keone, one of the co-founders of Samurai, was very insistent on fighting these charges and very much believed that these were unjust and what I heard was that the DOJ basically gave him an exploding offer.

Is that you have 24 hours to take this deal, and if you do not take this deal, there will not be another deal like it that's coming away. And so I think it was very much tied to the backlash against the tornado cash case. I mean, that would not be surprising I don't know the details of the case, but that is a narrative that I've heard, and it seems extremely logical to try to take or book a win for prosecuting a privacy protocol or privacy

system. I don't want to call it a protocol because it's a little bit different. I'd not have to risk Roman winning his case, which jeopardizes the samurai one. So, you know, I feel for those founders, like a lot. You know, I know it was probably an extremely difficult decision that they had to make to change their plea in what they, you know, was probably some horrible prisoner's dilemma-esque situation. Yeah. I think at the end of the day, you cannot judge another man for entering into a plea agreement because you do not know what they were facing and you don't know what they were up against. And you may believe that there were obviously many, many parallels between the samurai case and the tornado cash case. The facts were different and there may have been

other circumstances that I'm not aware of. But the broad contours of the arguments for the defense are very similar, is that, you know, this was just software. We were not running a business. We were not actively involved. We didn't take custody of any funds. And we were following the FinCand guidance that was laid out in 2019, saying that if it's non-custodial, then this is a, this is, you know, a kosher method of preserving privacy for users. But the DOJ made very clear that they were very intent on booking this win. Many of the cases that the DOJ previously brought and that the SEC of course had previously brought have already been dropped. But these two cases were the really high profile national security implicating cases that still had not been dropped, or if they had been

only one charge out of the many charges had been dropped. So again, I think it's, I do believe at the end of the day, if you listen to what the president has been saying, and also recently what the SEC has just said, which we'll get to shortly, everybody has been singing the same tune, which is that they do not want to see this campaign of intimidation against software engineers and innovators continue in the U.S. People know that this creates a chilling effect, that it pushes people overseas, that it tells them America is not the place for you if you want to experiment in building these new, innovative and somewhat subversive technologies.

Like privacy and fighting for the rights of the individual over the government is always subversive. To Tom's point, that was what the original cypherpunks fought for when they created Bitcoin. Bitcoin once upon a time was considered to be obviously illegal because everything that preceded it was illegal, right? You know, E-Liberty, sorry, Liberty Reserve was illegal. You know, many of the E-Cash, exactly, Chalmy and E-Cash was considered to be illegal.

And the idea was that the reason why Satoshi Nakamoto invented a blockchain was to fight back against the state's impulse to throw anybody who dared to create non-sovereign money and give people unilateral control over their own money was obviously doing so in concert with criminals or to break the law. It was intrinsically suspect. And it's only with the passage of time that we've realized,

like, huh, maybe there was a good idea that he did that. And in the same way, whether it's signal or encryption or all these things, Adam Back, one of the core devs of Bitcoin, one of his very first acts was the civil disobedience against the restrictions on encryption. is that literally the equations that dictate RSA encryption were considered to be illegal.

Like literally equations that you could write down on a piece of paper were illegal because they were encryption and encryption was regulated as a munition. And therefore, you know, you had to get some license from the government in order to encrypt things, which is fucking insane. That was obviously overturned in the courts as being illegal.

But it was overturned from people taking a stand individually for what they believed was, an unjust encroachment of the government on the rights of individuals. So anyway, sorry. I'm sure people have heard me talking in circles enough now. So we're going to stop here, but we'll have much more to say on this case once we see the verdict come down presumably early next week. Okay.

We were also going to cover the open-sea case. I don't know if I wanted to talk about open-sea. Next week on the show. Yeah. Yeah, maybe. Well, you'll get, yeah, you know, whatever. Okay. All right.

So let's cover a case that we have been circling around, but have not gotten to, which is Robert's liquor store. We've been getting a lot of requests for Robert to explain what happened with the liquor store situation. So I'm going to see the floor to you, Robert. Explain to us what happened in this story. Give us the chronology and how it resolved. Yeah. So the short of it is, you know, I have observed, you know, a train. of a lot of companies preparing to become digital asset treasury companies.

This is widespread at this point. You've probably seen dozens of these things popping up micro strategy has really blazed a trail that everybody else is following at this point. And, you know, as an individual investor, you know, I love to research things, you know, at like two in the morning when I'm, you know, hanging out in bed, you know, one of my many hobbies. And so, you know, I was researching companies in the space. and one of things that sort of came across, my research was a company that was a nano-nano market cap company, but which seemed like it wanted to become a digital asset

treasury company. They had announced that they were exploring digital assets and they had signed up and gotten a coin-based prime account. And the company seemed well positioned for this. Some people on the internet were like, oh, how did you, how do you find it? Also, why is getting a coin-based prime account sufficient? Great question. But, I mean, it's one less step for the sort of like factory assembly line of creating a digital essential company. I did not know there was other media about this company before you started posting about it. I thought it was just like some random.

Yeah, no, they had press releases and stuff about getting a. So you're just reading press release? Like that is like looking at press release? That's how you found this? Yeah. I had chat Shoe. doing research with me. Yeah, exactly. I was like, there's no way you're doing manually. Oh, oh, okay, okay. It was like what companies are between this market cap, if any of them

release press releases. So you set up like, hold on, I just want to understand it. You set up like a chat GPT alert, look at all the filings for companies that are micro, micro, microcaps that are saying anything about Bitcoin and you're on it. Exactly. So I'm screening the smallest companies that are publicly trained. And, you know, in my research, the liquor house comes up, right? I look into it. It's not a very successful company. I mean, it's not a successful company. They've struggled. You know, there's some questionable things in its history, but it's publicly traded. It has, as of their most recent filings, you know, $7 million of cash, no debt, and it was traded on the NASDAQ. And they seemed to want to

become a digital asset trade company. And so, you know, I've had so many friends launching these. I've helped friends, you know, as an investor or whatever. There was one that just announced yesterday, Ethzilla, which I'm, you know, excited about. But I've seen a number of these sort of grow up. And I thought, well, I have friends looking for companies. You know, I did a little bit of research. And I came to the conclusion that it could be a completely alternate path that no one had ever tried to, instead of raising a bunch of money and going in and negotiating with one of these companies to try to just acquire an out, right, on the expectation that they would hopefully know who I was, they'd be excited about this, and they would say, oh, crypto people are coming in,

let's form a digital asset treasury company. We said we're going to do this. Let's go, right? And so I bought 9.9% of the liquor house just to like get my toe in the water, you know, like see what was up. By 9.9%, I fill out the SEC filing for this. It's like a 13G filing. Sidebar, I mean, signing up for Edgar is horrible if the SEC has some time on the side and some extra engineers, like, please make the whole Edgar process better. It's like mind-numbingly difficult and horrible. And I actually think more people would be doing filings if it wasn't basically impossible to sign up and basically impossible to make filings. So if you want to see more disclosures and you want to see more people engaging in the process,

make Edgar easier. Anyway, I report my 9.9% ownership stake. And people on Twitter notice it. They pick it up. Like, I don't really say anything. People are like, hey, you know, this crypto guy just bought 9.9% of the liquor house. And it starts to, you know, appreciate a little bit. And I start getting a lot of, like, DMs like, hey, are you like doing anything with the liquor house?

And I'm not. I'm like, I bought 9. 9.9%. I just want to, like, learn more about this. See what's happening. And, you know, as I start to see more people talking about this on Twitter, I'm like, okay, you know what? Like, this seems viable, right? And so, you know, on Monday morning, I wake up really early and I buy as much stock as I can buy, right?

And I had done research on what their shelf capabilities were. I had spoken to some lawyers. I had gotten an, you know, analysis of this. And, you know, this is a part where we'll detour into, like, you know, the securities laws and the nuances of it. But, you know, in essence, there's multiple different types of shelf offerings. But in general, there's this principle that companies that are nanocap, as in below $75 million of actual market cap flow can only issue, like, a small amount of shelf, regardless of, you know. Can you explain for the audience, what is a shelf offering? Yeah, a shelf offering, great question, is when a company says, we're going to sell at

to the public by literally dumping shares on the exchange. It would be like if a crypto company had its tokens and were literally just like doing market orders on Uniswam. That's what a shelf is. The only difference is that a broker dealer does it for them. A broker dealer clicks the buttons. It's not an employee of the company clicking the sell button. It's somebody else clicking the sell button. But it's basically someone clicking the sell button. And so, you know, I calculate the max dilution and I buy 56% or what I believe to be 56% of liquor house. And I do the filing with 13D. And, you know, the number one comment is, hey, are you sure that that's the correct amount of shares? You know, and I say, well, yeah, based on my research, you know, it's the correct amount of shares.

Like, I believe I have 56% of liquor house. And all day, the volume of the trading on that Monday was just like insane. I mean, it's like crazy. And I... This is when Crypto Twitter discovers that Robert is CTOing a public company. And basically this becomes like the most popular trade on crypto outside of crypto is secret defy dev is accumulating a public company and who knows what's going to happen. It became kind of a meme. Yeah, it sort of, it basically became a meme on crypto.

Yeah. And so basically what happens is I think the company sort of like started just panic selling because they saw like, this is like a washed up liquor company that like hasn't really had any traction ever. This market cap was like $2.5 million. I think essentially what happened is they saw this rush of bid come in and they just had their broker just like clicking the sell button as fast as they could click the sell button. And when they're doing this, it's actually creating new shares. You know, it's not like there's a limit in the number of shares. You can invent shares. You make up new shares all the time. Tragfi is crazy. It's crazier than crypto in so many

different ways. And so the I don't know about that one. In many ways it's crazy and crypticry. I mean like we're tough you know. Yeah,

I think nano caps you've got a lot of leeway. Yeah. Especially if you have these gigantic tough offerings. So at this point, no one knows how many shares there are. I don't know. There's zero disclosures about it. You know,

in general when a company does a material, you know, amount of share issuance, they have to do a disclosure and update the public like, oh, we did a bunch of shares. offerings. Like, this is how many shares we have now. None of that was happening.

And so what's the cadence on which they have to update this? See, that's a good question, too. I mean, if you're a big company, you would do it anytime anything material has occurred, like that anyone would consider material, right? The question is materiality, right? Like, if you were a Fortune 500, you'd be doing filings very fast. I think it's different in nano-capland. And so the share count was increasing. And, you know, became apparent that I wasn't going to have the control to be able to call a shareholder meeting or directly like take this in an activist way. And so, you know, Matt Levine quickly came out with an article saying, hey, look at this thing happening in crypto. And I think he summarized it

best, which was you have a known crypto entrepreneur who comes into a two and a half million dollar liquor company and takes a controlling stake. You would think that the company would like start doing like an end zone touchdown dance, right? And instead, the reaction, I think, was to panic and issue as many shares as they could to fight off my control. And so I got in touch with the company and I basically said, like, guys, like, you should A, do a crypto treasury strategy because you could be successful at it. You're set up for it. You know, you have the pieces of place. And B, please make disclosures about how many shares you have because I don't know, nobody knows. Whatever's being displayed. laid in like your broker's account, like anywhere, is inaccurate.

It's fundamentally impossible for anybody to know how many shares are, at least with tokens, everyone knows. Everyone knows which wallet is there. And everyone knows how many are waiting to be sold. Everyone watches them go to exchanges. Fundamentally, nobody had any plausible basis to know with any remote accuracy how many shares existed on this company. And so, you know, a lot happened in those intervening days.

Two days after I started acquiring a stake, you know, they published a lawsuit that they had been sued in Nevada, their home state by another activist investor who was looking to seize control of the company, which was like the craziest coincidence of all. And like, right after they filed this, people on Twitter were like, oh my God, like, is that Leshner? Like, is he like that Machiavellian that he spent like nine months, like putting together like a legal dossier on the company and like all their, all like all these. complaints to try to like take receivership of them like that's that wasn't me and so like the lawsuit comes out you know the stock starts dropping and you know they finally tell me how many sheriffs are and they put it into a press. Did you tell them who filed the lawsuit? I didn't know who filed the lawsuit. No no but isn't this the what's his name? Yeah so and again like I'm not sure you know how involved certain people are and how it works but basically.

basically the, and this is what the internet latched on to, the team that filed the lawsuit is related to the arms dealer from the movie War Dogs that went to jail for defrauding the U.S. government. And so I think he's like an advisor. It's like, I don't know if it's his venture fund or like his family's venture fund. But like it's like Diveroli Ventures was like the, the, team that wound up suing the liquor house. So crazy twists and turns going on. I finally find out how many shares are by them publishing it in a press release, which

the company went from 1 million shares to almost 7 million shares over the course of a couple days. So they basically went through hyper dilution. At this point, I had zero plausible path to taking control of the company. It was clear that they didn't want me to have control of the company. And I basically had to announce like, hey, guys, like, I don't think this is possible. I still hold my shares, which at one point might have been 56%. They're now 8.something percent.

They could be a lot lower by now. I have no idea. And a lot of lessons have been learned here. Statistically, what are the lessons? Okay. Well, one, you know, I think the company made the wrong decision, many wrong decisions in this. I think Matt Levine got it right where he was like, you would think that they would be like waving this guy in and being like, hell yeah, let's build a digital asset treasury company.

They didn't. I think they got the probabilities on that wrong. I think they messed that up. I think they misplained the hand tremendously. Two, you know, it's frankly stunning how out of date financial information is in capital markets today, right? The fact that a company could go from one million shares to seven million shares and everyone's like the public at largest expectations of market cap and float could be so wrong is honestly an embarrassment to like capital markets. And the other major lesson I had was just that like a lot of

what happens in finance is like made up on the fly, like and along the way. Like in a way that like, yeah, there's some of that in crypto as well. But just like the rules of it are not as a as chiseled into granite as people think they are. And so coming out of this experience, I mean, I think we're going to see a lot of successful digital asset treasury companies. I still think and hope, you know, that there's a chance that they build a digital asset treasury company.

That would be awesome. You know, they certainly have most of their ownership probably is in the hands of crypto Twitter still. And, you know, it could have been the craziest lore for the startup one of these things. I think they blew it, like, badly. But that is the story. of the Linder House. Are you sure this wasn't just a like a hype stunt to promote Superstayed?

You didn't get free press from it. That's true. Yeah, that's true. I mean, it's cost. I don't think I would call that free. Yeah, I would not call that free press. It's cost me per se over a million dollars. Like, I'm down.

Yeah, okay, okay. So I think not legal or marketing advice, but Robert is telling you, if you run a microcap, you please get into his inbox because he's, he's waiting. I don't know about that. I'm pretty burned out. You're ready to run it back, Robert? Yeah.

I mean, it would be funny if you ran it back in the second time Crypto-Tor is like, fuck that guy. We didn't make money off this. And then it actually turned out to be like micro-strategy level investment. Yeah, I don't think I'm going to do that again. But it was fun to buy

what might or should have been the majority of a company on my phone just clicking buttons. I wasn't on the Twitter. It would have been funnier if you used Robin Hood instead of interactive brokers, I would say. It would have been like, that was like the last detail that you could. Agreed. If I had actually planned this out, you know, with a lot more nuance, I would have gotten Robin Hood loaded it full of money and bought it using Robin Hood.

I think someone out there could or should, you know, I think at some point someone's going to make the Leshner takes over Liquor House playbook a success. Most of the first token projects were not successes, you know, took a little bit of, you know, experimentation for a tour. You're always a trailblazer. You're always a trailblazer. Yeah. Someone's going to nail the landing. I believe it.

I believe it. So Robert, tell us what solves this problem. Crypto solves this problem. Oh, wow. Is it going to be related to a company anyway? I mean, like, genuinely, like, crypto does solve a lot of things. And I didn't do this as some, like, you know, performance art or like weird marketing stunt.

I did this because, like, it's fun to just dive headfirst into the arena genuinely and, like, do things that no one is actually done before. And I don't think anyone's really done this before. But crypto does solve this. And I'm actually really excited for the ways that Super State can begin to tokenize securities in a way that no one else will suffer this problem again. Hey, this is a great segue into talking about the SEC. It is. Absolutely. Well, actually.

So today, okay, so today we had a speech that was revealed by Paul Atkins, where they announced, Okay. Project Crypto. Today we had a speech by Paul Atkins where he announced Project Crypto, which is basically their attempt to create an entirely new regime under the SEC about crypto and bringing in more and more of the virtues of digital assets and blockchains to the traditional securities markets. So one element of this is trying to bring more and more assets on chain, such as tokenizing stocks, bonds, equities, and a regulatory framework for crypto asset securities, which is what very much Robert was alluding to, solves the problems around the liquor store. On the other side, he's trying to create a completely different environment for digital assets that are not securities in America.

So a few choice quotes from the speech. First, he stated, most crypto assets are not securities, which is a complete reverse. soul and negation of what Gary Gensur said in the previous administration, where he said explicitly, most crypto assets are securities. So now we have a very clear statement from the SEC, most crypto assets are not securities. He said, we will work to bring crypto asset distributions back to America. He wants to create rules around airdrops, ICOs, network rewards, such that they no longer exclude Americans. So trying to bring an end to these IP blocks and these VPN blocks that prevent Americans for participating in most of the digital asset industry,

protecting the right to use a self-custodial digital wallet and also allowing custodial services, enabling people to build super apps so that you can have single platforms or you have staking, lending, borrowing, all these functions under a very streamlined licensing regime. And lastly, he described potentially an innovation exemption such that projects built by early stage entrepreneurs can go to market without full traditional compliance, without having to worry about every single jot and tittle. So basically understanding this notion. of progressive decentralization, not being able to decentralize a project entirely from day one.

So what we've seen is in SEC responding to the realities of how the crypto industry actually works. And it makes perfect sense because, of course, Paul Atkins, he himself was an advisor to reserve protocol. And I think he was involved with, I think it was the digital chamber, which is a crypto advocacy group. So he very well understands the constraints under which crypto entrepreneurs actually build things. And one of the last statements he made, which I think will bring the show full circle, he stated,

the SEC will protect pure publishers of software code. He wants to make sure developers are treated as code writers and not as intermediaries. But if you are an intermediary, there is also a place for you. And he stated very clearly in his speech that he wants there to be a place for one, pure non-intermediated software,

such as defy and, you know, AMMs and so on. but also for intermediaries. That if you're building something that is custodial or that does require, that is an exchange that has more admin rights or whatever, there's also a place for that. We want to make sure that those kinds of innovations can also be created in the U.S. So an extremely bullish speech, one of the best statements of policy I have seen. Now, it's just a statement of policy. We don't have rules.

We don't have any clear guidelines quite yet. But it's very clear. This is a completely new statement from the SEC that's in line very much with the statement made yesterday by the White House about their goals. on policy in the U.S. Turin, what's your response? Couldn't be more bullish? I don't know. I think like that doesn't that just like say everything that people have been saying for like

five years, more than five years? It's everything that should have been said a year ago, two years ago, three years ago, four years ago, five years ago, six years ago, seven years ago, eight years ago, nine years ago, ten years ago, no one even knew about this stuff. Well, ten years ago, Ethereum just started. Exactly. Welcome to the world computer. Yeah, I feel like it kind of reminds me of of Trump's with like Bitcoin Nashville speech.

We're just like I kind of visualize it's almost like guitar hero. It's like you just hit all the notes perfectly and you got like 100%. I feel like Nashville was like it was like we're going to use Bitcoin Reserve, we're going to free Ross. It's like, oh yeah, he like got all the notes. And this feels kind of the same way. It's like, yeah, this is what we've been asking for forever and you didn't miss anything. And it's awesome.

No, it really feels like someone wrote a fanfic. That's the problem. I think because I'm in crypto, I'm just too skeptical. I'm like, this is a little too good, way too good to be true. Like there's going to be something that goes wrong. Hey, he tweeted, he tweeted it. Came out of SEC. I know, I know.

But the paranoia, right, of like all the years of rug pulls, I feel like, you know, you build up the spiky sense. I know, but like America generally gets it right. That's the thing. It's like new assets have come along. New asset classes have come along. New technologies have come along. And like America has only predominantly under the Gensler era gotten it wrong, right?

America usually is like, okay, there's new stuff. How do we think about it? How do we wrap it in and how do we do it correctly as opposed to like, ew, it's new, like burn it to the brown, right? Like there's been so many new asset classes that like we make tailored rules for, you know, whether it's like asset back securities, whether it's like, you know, internet-based trading. Like, the SEC has done like so many new things over the years.

It has never been like, new is bad. All of you are criminals. Like it's always been like, all right, it's new. Like, what forms have to change to accommodate this? Well, to quote Winston Churchill, America generally does the right thing after it tries everything else. So so far we've tried everything else. I think the only thing left to do is to do the right thing. Yeah, there we go.

It's a good, good, good, good, good, uh, slogan for the thing we started the episode on, as well as the thing we hand the episode on. Yeah. Here's to getting it right. Here's to getting it right. Okay. We're going to wrap. We'll be back next week.

Thanks, everybody. Let's see we'll sleep more.