Dragonfly Capital, an early investor in Tornado Cash’s developer PepperSec, Inc., is potentially facing federal charges. However, the venture firm is ready to “vigorously defend” itself if the prosecutors decide to move forward with the case.
In a recent social media update, the managing partner of Dragonfly Capital, Haseeb Qureshi, reiterated the company’s support for Tornado Cash. Tornado Cash is an open-source protocol enabling users to conceal blockchain transactions. Dragonfly Capital’s investment in this technology goes back to August 2020.
“Our investment was driven by our belief in the significance of open-source privacy-preserving technology,” Qureshi stated. He mentioned that they had sought legal advice before investing and were informed that Tornado Cash was compliant.
However, despite the legal assurance, Tornado Cash developers Roman Storm and Roman Semenov were accused of money laundering and sanctions violations by the US Attorney’s Office for the Southern District of New York in August 2023. Storm is currently facing a trial in New York, where he may encounter federal charges leading to over 40 years in prison.
On Friday, the prosecutors hinted at the possibility of charging Dragonfly for its investment in Tornado Cash five years ago. “We consider the government’s statement in court today to be primarily aimed at weakening a defense of Tornado Cash,” Qureshi commented. He called the idea of pressing charges after such a long period, “outrageous.”
He further emphasized, “We don’t anticipate that the DOJ would actually press such absurd and baseless charges. But if they do, we are ready to defend ourselves strongly.”
Tornado Cash developers positioned the platform as a decentralized, non-custodial privacy tool that allowed users to transact digital assets without exposing their wallet history. Yet, prosecutors argue against this claim.
In 2022, the US Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash. The tool was accused of enabling money laundering, supporting cybercrime, threatening national security, and concealing illegal transactions. Despite sanctions and criminal investigations, Tornado Cash witnessed a comeback in 2024, as evidenced by $1.9 billion in deposits during the first half of the year, according to data from Flipside Crypto.
