Dragonfly Trader Could Encounter DOJ Allegations Regarding Tornado Cash Investment
Dragonfly Capital may be facing significant challenges. A federal attorney informed a court in New York that the Department of Justice is contemplating criminal charges against one of the firm’s general partners regarding their investment in Tornado Cash. This unexpected development arises in the trial of Tornado Cash developer Roman Storm and prompts a broader inquiry: can investors be legally held accountable for the actions of their portfolio projects?
Legal Attention Turns to Tom Schmidt
Tom Schmidt, a partner at Dragonfly, was mentioned in court when the prosecutor remarked that charges against him were still being considered. Although that statement was promptly sealed from the database, the implication was unmistakable. Currently, he hasn’t been indicted, but he is under intense investigation. Such scrutiny on a venture capital investor is uncommon, especially when they weren’t directly involved in the daily operations.
Dragonfly Emails Emerge in Court Proceedings
One reason for the DOJ’s focus may be the internal emails now presented as evidence. Messages dating back to 2020 reveal that Dragonfly was in discussions with Tornado Cash’s developers about regulation features, including KYC processes. This could have dual implications. On one side, it indicates that Dragonfly was cognizant of regulatory issues. Conversely, it might be construed as evidence that they were aware of the risks yet proceeded anyway. Schmidt, for his part, declined to testify, invoking the Fifth Amendment.
Dragonfly Stays Firm
Haseeb Qureshi, another managing partner at Dragonfly, has publicly responded. He described the notion of criminal charges against an trader as ludicrous. He stated that Dragonfly sought legal counsel prior to making investments, had no operational role in the company, and absolutely did not assist anyone in laundering money. He further emphasized the firm’s dedication to privacy technology and mentioned that they’ve been cooperating with authorities since the previous year.
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If a VC Can Be Charged, What’s Next?
This could establish a new standard for legal risks within the crypto realm. Charging a venture capitalist for investing in a project that subsequently draws sanctions or enforcement actions could deter other investors from participating. There is already some reluctance surrounding privacy technology, but this might exacerbate it. Investors may begin to steer clear of anything even slightly contentious, irrespective of the neutrality of the technology itself.
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Schmidt Remains Silent, Defense Suffers Consequences
With Schmidt opting not to testify, the defense team forfeits a critical opportunity to clarify Dragonfly’s perspective. His testimony could have aided Storm in demonstrating that the developers were collaborating with partners who prioritized crypto law. However, since the government did not extend immunity, Schmidt chose to remain silent. This choice may affect how the remainder of the case progresses.
Wider Implications for Crypto and DeFi
Roman Storm and his co-defendant are facing allegations including money laundering and suspected connections to sanctioned entities, such as North Korea’s Lazarus Group. Regulators are clearly expanding their scope. It’s no longer exclusively about developers. Now, investors and backers may also find themselves drawn into legal proceedings.
Is this another phase where all this organization will start going after crypto companies? it absolutely makes no sense for DOJ to act like this. that is bitter nonsense
I hope you guys win and come out just like how consensys did.
stay strong haseeb.
— danny (@he3is_) July 25, 2025
Precedent or Cautionary Tale?
Up to this point, Schmidt hasn’t been indicted. Nonetheless, if the DOJ proceeds with charges, it could establish a significant precedent. If it drops the case, it still conveys a message that no one in the crypto industry is immune. Investors might have to reconsider what they price floor and how involved they wish to be. This case extends beyond Tornado Cash. It’s about the boundaries the government sets.
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Key Summary Points
- The DOJ is contemplating criminal charges against Dragonfly partner Tom Schmidt over the firm’s investment in Tornado Cash.
- Internal emails from 2020 reveal Dragonfly discussing KYC and compliance elements with Tornado Cash developers.
- Schmidt invoked the Fifth Amendment and refrained from testifying, restricting the defense’s capacity to outline Dragonfly’s involvement.
- Dragonfly managing partner Haseeb Qureshi labeled the notion of charging a VC as preposterous and asserted that they adhered to legal counsel.
- This case may establish a new norm, putting investors at legal risk for the conduct of crypto projects they finance.
The post Dragonfly Investor Might Face DOJ Charges Over Tornado Cash Bet appeared first on 99Bitcoins.
