The U.S. Department of Justice is weighing charges against Dragonfly Capital’s partner Tom Schmidt in the Tornado Cash case. According to the latest report from the department, it’s still considering charging Schmidt for backing Tornado amid recent documents that reveal a series of email exchanges.
Documents tendered in court reveal email exchanges between Tornado Cash’s Roman Storm and Dragonfly’s Schmidt discussing KYC integration. As the case continues to unfold, the crypto community awaits what happens to Schmidt and his crypto venture firm, Dragonfly Capital.
What is Schmidt Charged For?
Tom Schmidt is facing potential charges for his alleged involvement in Tornado Cash, a privacy protocol allegedly used to launder money for the popular North Korean hackers Lazarus Group. Court documents revealed internal emails in which the Dragonfly Capital general partners discussed integrating KYC functionality into Tornado amid compliance issues.
Roman Storm, the co-founder of Tornado Cash and co-defendant Roman Semenov, face charges of money laundering and violation of United States sanctions. According to the DOJ, Schmidt’s actions are liable to prosecution, suggesting that he was well aware of the legal risks.
Storm’s defense requested that Schmidt testify to provide clarity around those communications. However, the Dragonfly general partner pleaded the Fifth Amendment right, a request which the prosecution declined. Prosecutor Thane Rehn confirmed that Schmidt and his employees may be indicted, though it wasn’t specified.
Implications of the Tornado Cash Case on Dragonfly
The case indicates that even financial backers are liable to prosecution if they support a tool used for illegal activities. If Schmidt is found guilty, it may establish a precedent where financial backers will be more cautious of funding privacy-focused projects. Future VCs may avoid funding projects without a clear compliance roadmap or built-in KYC/AML architecture.
Dragonfly’s Haseeb Qureshi seems to have a different opinion about the case. In his defense, he said Dragonfly acted lawfully and had outside legal counsel to affirm Tornado’s compliance. He added that charging investors like Dragonfly will be “chilling” to innovation.
What’s Next for Schmidt in the Tornado Cash Case?
As of this writing, Schmidt hasn’t been indicted yet, as the DOJ continues to examine documents. Therefore, the case remains open, and his invocation of the Fifth doesn’t necessarily mean he’s guilty. If immunity is granted, more documents may be uncovered that will explicitly state Dragonfly’s stance in the case. The judge suggests the DOJ should proceed cautiously in their prosecution, as the case heats up.
Roman Storm had appealed for financial help for his trial, saying he needed $500,000 plus an extra $1 million in subsequent weeks to fund his defense. So far, Storm and his legal team have raised about $2 million, roughly 57% of the total money. The case could cost Storm about $3.5 million, as his trial could stretch over four weeks.
Some of the donors include the Ethereum Foundation and Bill Warren of MetaCartel. The Ethereum Foundation donated $500,000, with more community donations expected to reach $750,000.
