A U.S. federal court in Texas has dismissed a lawsuit brought by a crypto developer seeking legal protection for his software dealing a setback to efforts aimed at shielding non-custodial tools from regulatory scrutiny.
The case, filed by developer, Michael Lewellen, sought a declaratory judgment that his blockchain-based software called Pharos would not be subject to prosecution under U.S. money transmission laws.
The court documents state:
Lewellen has refrained from launching his business out of fear of prosecution under 18 U.S.C. § 1960.
This statute criminalizes the failure “to comply with the money transmitting business registration requirements under 5330 of title 31, United States Code, or regulations prescribed under such section” for “whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business[.]” 18 U.S.C. § 1960.
He is concerned that he will face prosecution for his business that uses his non-custodial code because there are “several ongoing cases with operating unlicensed ‘money transmitting’ businesses under 18 U.S.C. §[]1960(b)(1)(B)” involving similar non-custodial software.
He filed this action, seeking a declaratory judgment that his actions are legal and an “injunction preventing the enforcement of the federal money transmitting laws against Lewellen’s planned cryptocurrency business.”
However, the court rejected the claim ruling that Lewellen failed to demonstrate a credible or imminent threat of enforcement against him.
The judge’s decision centered on legal standing finding that the developer’s concerns were largely hypothetical rather than based on any active or pending government action. Without a clear risk of prosecution, the court concluded there was no basis to grant preemptive legal protection.
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The court ruling reads:
Lewellen fails to show there is substantial threat of prosecution.
Lewellen argues he has a credible fear of prosecution because of ongoing Department of Justice (“DOJ”) cases against defendants “operating unlicensed ‘money transmitting’ businesses under 18 U.S.C with similar non-custodial cryptocurrency technology.
That contention is unpersuasive.
The “core conduct” of those cases is money laundering. By contrast, the core conduct here would be running a business. And Lewellen disclaims any knowing transmission of criminal funds, which is central to the prosecutions he invokes.
Consistent with this distinction, the DOJ has issued a memorandum entitled “Ending Regulation By Prosecution,” formally declaring DOJ will not pursue enforcement actions against “virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations” – the exact scenario over which Lewellen brought this suit.
Accordingly, the ongoing cases are not “substantially similar” to Lewellen’s intended conduct.
While both involve non-custodial cryptocurrency technology, similarity of the tools does not establish similarity of conduct. The critical inquiry is the underlying nature of the conduct, not the mechanism by which the conduct is carried out.
Lewellen admits that his cryptocurrency software code is merely a tool. The fact that “DOJ has taken the position that 18 U.S.C. § 1960 does not require the business to have control of transferred cryptocurrency as a prerequisite to registering as a money transmitter”14 while targeting money laundering does not establish a credible threat of prosecution against a business simply because it uses a non-custodial cryptocurrency software.
Without more, Lewellen has only “a general fear of prosecution [which] ‘cannot substitute for the presence of an imminent, non-speculative irreparable injury.’” Id. (citing Google, Inc. v. Hood, 822 F.3d 212, 228 (5th Cir. 2016).
Disappointed to see the court dismiss my suit today. A non-binding DoJ memo is no substitute for real legal certainty.
My lawyers are exploring all options for a path forward. Huge thanks to the @coincenter team for their incredible support and expertise through this.
We need… https://t.co/uXJqGww7IO
— Michael Lewellen (@LewellenMichael) March 25, 2026
The ruling underscores a broader challenge facing crypto developers in the United States: courts have repeatedly required concrete evidence of regulatory harm before intervening, particularly in cases involving emerging technologies and unclear enforcement boundaries.
Lewellen had argued that uncertainty around how authorities might treat his software – designed for crypto-based donations to charitable crowdfunding campaigns – created legal risk for developers building non-custodial tools. But the court’s dismissal suggests that, absent direct enforcement action, such claims may struggle to gain traction.
The decision comes amid ongoing debates over how U.S. laws should apply to decentralized software, with regulators increasingly focusing on the role developers play in enabling financial transactions on blockchain networks.
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