Latest news with #TornadoCash
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5 days ago
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Tornado Cash investor slams prosecutors eyeing ‘unprecedented' new charges
Federal prosecutors could charge executives at crypto venture firm Dragonfly Capital in connection with its 2020 investment in Tornado Cash developer Peppersec Inc, an assistant US attorney reportedly said Friday. That prompted a swift rebuke from one of the firm's managing partners, who said the company stood by its investment and called the prospect 'outrageous.' 'We made this investment because we believe in the importance of open-source privacy-preserving technology,' Managing Partner Haseeb Qureshi said on X on Friday. 'Charging a venture firm for a portfolio company's alleged misconduct would be unprecedented.' Attorneys for Tornado Cash co-founder Roman Storm want to call Dragonfly Managing Partner Tom Schmidt as a witness in Storm's criminal trial, which began last week in New York. But Schmidt, apparently facing the spectre of prosecution, has said he intends to invoke his Fifth Amendment right against self-incrimination, according to Storm's attorneys. 'Are you looking at possibly prosecuting everyone at Dragonfly?' Judge Katherine Polk Failla asked federal prosecutor Thane Rehn on Friday during a back-and-forth over Schmidt's potential testimony, according to a post from Inner City Press. 'Not everyone,' Rehn reportedly replied. Tornado Cash allows users to cloak the movement of crypto from one wallet to another. Its users include people who want to maintain their privacy on the blockchain, as well as cybercriminals who have used it to launder stolen crypto. Prosecutors have charged Storm with conspiracy to commit money laundering, operate an unlicensed money-transmitting business, and violate US sanctions. He faces more than 40 years in prison. Dragonfly invested $882,000 in Peppersec in August 2020, according to a document unveiled in court on Thursday. Qureshi said Friday that Dragonfly 'obtained an outside legal opinion that confirmed that Tornado Cash as built complied with the law.' Private messages At Storm's trial Thursday, prosecutors shared a series of private messages between the Tornado Cash founders and Dragonfly executives. The executives advised the founders on their business plans, including a proposal to re-create Tornado Cash with anti-money laundering features, the messages show. Two days before investing in Tornado Cash, Qureshi urged Storm to create a three-year vesting schedule for the founders' tokens. 'You don't want to spook the market,' Qureshi said. '2 years is on the small side these days for founder lockups.' In February 2022, Storm asked Schmidt to urge holders of the Tornado Cash token to vote to introduce a 'relay registry' — a protocol feature that was key to some of Storm's alleged crimes, prosecutors say. Later that year, governments began to scrutinise privacy-enhancing crypto protocols such as Tornado Cash, and the founders began to implement changes to limit its use by cybercriminals. In April, the founders changed the Tornado Cash website to block crypto wallets sanctioned by the US. A month later, Storm told Dragonfly executives the Peppersec team was 'brainstorming an idea.' 'Privacy for blockchain with full compliance,' Storm said in a message in a group chat that included Qureshi and Schmidt. 'Has to be under new brand name, basically fork of Tornado Cash but with KYC/AML in it.' Qureshi said he was 'not a fan' of the idea. 'Legally it seems fine, but I just don't know if anyone will actually want this,' he said. 'Market need seems quite thin.' Dragonfly cooperation Tornado Cash was sanctioned by the US Treasury Department's Office of Foreign Assets Control that August. (Those sanctions were lifted this year after Ethereum developer Preston Van Loon and other Tornado Cash users successfully sued the Treasury Department.) 'Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis,' Treasury official Brian Nelson said in a statement. Storm was arrested a year later. Despite living in Washington State, the software engineer is being tried in the Southern District of New York. Prosecutors say that by communicating with Schmidt while the executive was in New York, Storm committed his alleged crimes in the district. 'We always encouraged our portfolio companies to follow the law, and we maintain that Tornado Cash itself has a lawful right to exist—a view reinforced by Van Loon v. Department of the Treasury and OFAC's subsequent rescission of sanctions,' Qureshi said Thursday. Dragonfly received a government subpoena in 2023 and has 'fully cooperated' with the government's investigation of Roman Storm since, according to Qureshi. He added that prosecutors have 'made clear' the venture firm was not a target of their investigation. 'We believe the government's statement in court today was primarily to undermine a defense of Tornado Cash—to make it more difficult for the defense to call Tom to testify on the stand,' Qureshi said. 'After all of this time—years later—bringing charges against Dragonfly would be outrageous, contrary to the facts and the law, and would induce a chilling effect onto all investment into crypto and privacy-preserving technologies in America.' Aleks Gilbert is DL News' New York-based DeFi Correspondent. Reach out to him with tips at aleks@ Sign in to access your portfolio
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5 days ago
- Business
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Weekly Recap: Ethereum's Comeback Summer
It's hard to believe that ETH was languishing at less than $1500 in April. Now it's above $3800 again. Ethereum's comeback is the story of the summer. Through ETFs ($2 billion inflows in two weeks), ETH treasury vehicles and excitement around tokenization, the comeback is well and truly on. And institutions are in the driving seat. One of BlackRock's key digital assets stars will lead Joseph Lubin's ETH vehicle, SharpLink. As EY's Paul Brody wrote this week, with institutions, 'Ethereum Has Already Won,' and will probably keep winning for decades to come. The incumbency of the Network Effect – that a critical mass of transactions in stablecoins and tokenization will fall to Ethereum – makes it a de facto network. We'll see. In markets: While bitcoin held steady under 120k, altcoins did well. Hell. Most of the crypto market is looking relatively healthy these days. And, according to President Trump, Jerome Powell could soon cut rates (or get fired). If so, that will help risky assets like bitcoin et al. In other big news: Roman Storm's Tornado Cash trial intensified. CoinDesk's Cheyenne Ligon was there. Elon signed up X/Grok to prediction market Kalshi JP Morgan will offer crypto loans but faces protests from crypto trade groups over data access. See you next in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
5 days ago
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Tornado Cash dev Roman Storm begins criminal trial with fight over chat records
The highly-anticipated criminal trial of Tornado Cash co-founder Roman Storm began Monday with jury selection and an arcane dustup: Whether private messages and pictures furnished by Apple, X, and a venture capital firm are 'business records.' The wrangling over technical and legal minutiae could be a sign of things to come: Judge Katherine Polk Failla suggested Storm's trial could last four weeks — one fewer than the marathon trial of Sam Bankman-Fried in November 2023. Jurors in that trial found the shaggy-haired crypto mogul guilty of one of the largest financial frauds in US history. The stakes of Storm's trial are even higher, touching on free speech and the future of software development in the US, according to his supporters. The prosecution's case relies on a novel theory, they say: that by simply writing code, Storm conspired to help cybercriminals launder stolen crypto and evade US sanctions. 'Today, the target is Tornado Cash,' crypto advocacy firm DeFi Education Fund wrote in a summary of the case. 'But under such a sweeping interpretation, tomorrow it could be the developers of a VPN, an encrypted messaging app, or a peer-to-peer file sharing tool.' Prosecutors, in turn, have said Storm and co-founder Roman Semenov knew Tornado Cash was being used to launder dirty crypto and declined to take meaningful steps to stop cybercriminals from using the protocol. Dressed in a crisp, checkered shirt tucked into blue pants, Storm appeared upbeat on Monday, happily greeting supporters outside the cavernous courtroom in lower Manhattan. Hearsay Last week, attorneys for Storm asked the judge to bar prosecutors from introducing evidence furnished by X, Apple, and crypto venture capital firm Dragonfly, as well as evidence extracted from the phone of Alexey Pertsev, a Tornado Cash developer who is appealing a money laundering conviction in the Netherlands. Evidence extracted from Pertsev's phone included a Telegram message Storm received in March 2022: 'Would like to ask a few general questions about how one goes about cashing out 600 mil.' It was a reference to the $600 million hack of Axie Infinity, which authorities attributed to hackers affiliated with North Korea. The hackers laundered the stolen crypto through Tornado Cash, according to prosecutors. Prosecutors have said that message was authored by Pertsev, a fact that would suggest the Tornado Cash developers were, at the very least, unconcerned about the protocol potentially being used to launder dirty crypto. But Pertsev didn't send that message. It was authored by a reporter at CoinDesk, who had reached out to Pertsev for comment after the Axie hack. Pertsev then forwarded the message to Storm. But the way in which prosecutors formatted the evidence extracted from Pertsev's phone obfuscated the source of forwarded messages, according to Storm's attorneys. Storm's attorneys said the issue invalidated any supposed evidence gleaned from Pertsev's phone. 'Because of the sheer number of forwarded messages sprinkled throughout the Telegram messages, it is impossible to have confidence in these government exhibits,' they wrote on Friday. Storm's attorneys also said that other data extracted from Pertsev's phone was 'cherry-picked,' possibly excluding exculpatory evidence, and that it could have been tampered with, though there was no evidence to suggest this happened. But Failla, the judge, said she wouldn't entertain such remote hypotheticals. As for messages from Pertsev's phone, Failla said she believed the government would be able to authenticate the source of any forwarded messages shared during the trial. Storm's attorneys also attempted to block prosecutors from sharing images and messages they acquired after sending subpoenas to Apple, X, and Dragonfly. Prosecutors have said those images and messages are 'business records' exempt from laws barring the use of hearsay as evidence. Brian Klein, an attorney representing Storm, argued those images and messages were the property of users, rather than the businesses that stored them. But Judge Katherine Polk Failla appeared unconvinced. 'It's a point you're not making very well,' she told Klein after an extended back-and-forth. The defense team did notch a minor victory Monday morning when Failla said it could talk about standard practices among other crypto mixers. 'It's not an 'Everyone is doing it' defense, which would have troubled me,' the judge said. Cause célèbre Like other crypto mixers, Tornado Cash is software that cloaks the flow of crypto on the Ethereum blockchain. In 2022, the US sanctioned the protocol over its alleged role in helping North Korean hackers launder stolen crypto. In November, however, a federal appeals judge said the government had overstepped its authority when it first levied the sanctions. The Treasury Department removed the sanctions in March. In August 2023, prosecutors charged Storm and Tornado Cash co-founder Roman Semenov with conspiracy to commit money laundering, conspiracy to operate an unlicensed money-transmitting business, and conspiracy to violate US sanctions. Semenov remains at large. Storm has raised more than $1.9 million for his defense, according to Donors include Ethereum co-founder Vitalik Buterin, RAI founder Ameen Soleimani, the Ethereum Foundation, and venture capital firm Paradigm. Paradigm, several crypto trade associations, and the Electronic Frontier Foundation have submitted legal briefs in Storm's defense. Storm has said he faces up to 45 years in prison if he is found guilty, according to Aleks Gilbert is DL News' New York-based DeFi Correspondent. Reach out to him with tips at aleks@
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5 days ago
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Storm defense eyes mistrial, citing testimony from Tornado Cash ‘victim'
Attorneys for Tornado Cash co-founder Roman Storm might move for a mistrial after learning prosecutors called a witness with a tenuous connection to the controversial crypto protocol. If the request were granted, Storm's criminal trial would end, though prosecutors could choose to retry the case with a new jury. It is a dramatic turn of events in a closely-watched trial entering its second week. Storm has been charged with conspiracy to launder money, operate an unlicensed money-transmitting business, and violate US sanctions. He faces 45 years in prison. Crypto proponents say a guilty verdict could have a chilling effect on the development of privacy preserving software and decentralised finance. Storm has raised millions for his defence from prominent donors including Ethereum co-founder Vitalik Buterin. On Monday, David Patton, one of the attorneys for Storm, questioned the testimony of the government's first witness: Hanfeng Lin, a Taiwanese woman living in Georgia. Lin recounted falling for a so-called pig butchering scam in 2021. A 'crypto recovery service' she hired in 2022 told her some of the stolen crypto was laundered through Tornado Cash. Prosecutors have said her testimony would prove that illicit funds were deposited in Tornado Cash and explain her decision to reach out to the protocol's co-founders, thereby alerting them to the fact it was being misused. But weekend research from the defence team suggested Lin's money never went to Tornado Cash, Patton said on Monday. 'They called a very sympathetic alleged victim who, from our research over the weekend, we can't find a connection between her funds and Tornado Cash,' he said. If so, 'she has utterly no relevance,' Patton continued. He told Judge Katherine Polk Failla he would ask to strike Lin's testimony and might go so far as to move for a mistrial. Storm's defence raised the issue days after crypto security researcher Taylor Monahan assailed the government's decision to call Lin to the witness stand for the very same reason. Monahan said she was unable to find evidence Lin's crypto ever went to Tornado Cash. On Monday, pseudonymous crypto sleuth ZachXBT endorsed her analysis. But prosecutors are standing by Lin's testimony. On Monday, Assistant US Attorney Than Rehn said the government had just filed evidence demonstrating Lin's crypto did, in fact, end up in Tornado Cash. A forthcoming government witness would help prove that point, he added. Storm's trial began on Monday. It is expected to last three weeks. Aleks Gilbert is DL News' New York-based DeFi correspondent. You can reach him at aleks@ Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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5 days ago
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Roman Storm trial roiled by controversial testimony on stolen crypto link to Tornado Cash
Tornado Cash co-founder Roman Storm suffered a setback Wednesday morning after a federal judge allowed an IRS agent to testify that crypto stolen from Hanfeng Lin, a woman living in Georgia, was ultimately deposited in the crypto mixer. Under cross-examination, IRS Special Agent Stephan George said he could not prove that Lin's scammer deposited the crypto in Tornado Cash. He testified that crypto could have changed hands as it moved across a series of digital wallets. But some of the crypto did eventually make its way into Tornado Cash, the agent said. His testimony contradicted prominent blockchain forensics experts who said none of Lin's money ever went to the protocol. Stolen crypto The fate of Lin's stolen crypto has taken center stage at Storm's criminal trial this week. The Georgia woman was the government's first witness in its prosecution of Storm. On July 15, LIN testified that she lost about $250,000 in crypto to a pig butchering scam in 2021. She attempted to contact Storm in 2022 after a 'crypto recovery service' told her some of the stolen crypto was laundered through Tornado Cash. If her money never went to the protocol, 'she has utterly no relevance' to Storm's alleged crimes, his attorney David Patton said Monday. That could be grounds for a mistrial, the attorney said. If the judge agreed, Storm's criminal trial would end, though prosecutors could choose to retry the case with a new jury. Prosecutors have charged Storm with conspiracy to commit money laundering, operate an unlicensed money-transmitting business, and violate US sanctions. He faces more than 40 years in prison. His case has become a test for crypto privacy as supporters, and Storm's lawyers, argue that he should not be held liable for the smart contracts running Tornado Cash. 'Not qualified' Prosecutors initially asked George to testify that Storm had made millions selling his Tornado Cash tokens in 2022, when government scrutiny of the protocol intensified. They said this is proof that the software engineer knew he had committed a crime. Their plans changed over the weekend. On Friday, crypto security researcher Taylor Monahan said she was unable to find evidence Lin's crypto ever went to Tornado Cash. ZachXBT, the pseudonymous crypto investigator, has endorsed her analysis. On Sunday, prosecutors said they would also ask George to corroborate the claim that Lin's stolen crypto ended up in Tornado Cash. Defence attorneys attempted to bar the agent from sharing that analysis with jurors. 'Agent George is not qualified to do this sort of tracing and his methodology is unsound and not an accepted methodology for attribution in the field of blockchain tracing,' they wrote in a letter to the court Tuesday. 'Last in, first out' But Judge Katherine Polk Failla let the agent testify on the grounds that defence attorneys could prove his supposed incompetence during cross-examination. The agent used an accounting method known as 'last in, first out' to trace the stolen funds, he testified. Over a series of seven steps, 47,000 of Lin's USDT tokens were batched with other crypto before being converted to Ether and deposited in Tornado Cash, he said. During cross-examination, George said he could have reached a different conclusion had he used a different accounting method, such as first in, first out. He also said his method could not prove who owned the accounts that Lin's crypto supposedly traveled through. 'This doesn't prove that the hacker deposited money to Tornado Cash, does it?' Defence attorney Keri Axel asked the agent. 'No, not at all,' he said. But Axel was unable to complete her cross examination on Wednesday. She told the judge it will likely last another half hour when the trial resumes Thursday morning. Protocol control Philip Werlau, a senior investigator at blockchain analytics firm took up the majority of Wednesday's testimony. Werlau testified that aspects of the Tornado Cash protocol could have been changed by Storm and his co-founders. Specifically, the protocol's so-called relay system had code that could have been changed to deter money laundering, Werlau said. While those changes required approval from Tornado Cash token holders, Storm and his co-founders had enough tokens to determine the outcome of any vote, according to Werlau. Moreover, about 99% of all deposits to Tornado Cash relied on the relay system, according to Werlau. Those that did not use the system could not benefit from the anonymity Tornado Cash provides, as it would be easy to link crypto deposited directly in the protocol to crypto withdrawn from the protocol, he added. Tornado Cash founders did take steps to limit money laundering. In 2020, they blocked access to the Tornado Cash website for users from certain countries. In 2022, they blocked access to sanctioned crypto wallets. But both of those measures were easily circumvented, according to Werlau. Even if sanctioned wallets could not use the website, their owners could still access the protocol and its relay system through the command-line interface on their computers. 'They closed the UI [website] door but they left the CLI door open,' Werlau said. Prosecutors said they expect to finish their portion of the trial Thursday morning. Defence attorneys said they could end their portion as early as Monday — unless Storm himself testifies, a high-risk, high-reward strategy that failed crypto fraudster Sam Bankman-Fried in his November 2023 trial. Bankman-Fried withered under cross-examination, appearing evasive and drawing a rebuke from the judge. He was eventually convicted on all seven counts and sentenced to 25 years in prison. Aleks Gilbert is DL News' New York-based DeFi Correspondent. Reach out to him with tips at aleks@ Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
