DOJ Hints at Potential Charges for Dragonfly VC Partner in Ongoing Tornado Cash Case

U.S. Department of Justice Considers Charges Against Dragonfly’s Tom Schmidt

News has emerged that the U.S. Department of Justice (DOJ) may be preparing to charge Tom Schmidt, a general partner at renowned crypto venture capital firm Dragonfly, as part of the high-profile Tornado Cash case. This unexpected development came to light during the trial of Tornado Cash developer Roman Storm, raising new questions about the liability of venture capital investors in the cryptocurrency ecosystem.

Prosecutorial Disclosure in Tornado Cash Trial

The revelation occurred when Assistant U.S. Attorney Thane Rehn publicly acknowledged in court that criminal charges are still being evaluated for Schmidt. The admission was quickly followed by a request to have the comment sealed, reflecting the DOJ’s strategic caution and the ongoing nature of their investigation. This disclosure centers on evidence submitted during Storm’s trial—specifically, email exchanges between Schmidt, Dragonfly co-founder Haseeb Qureshi, and the Tornado Cash development team. These communications reportedly discussed the implementation of know your customer (KYC) protocols, a point that directly challenges the prosecution’s assertion that Tornado Cash developers willfully abetted money laundering activities.

Investor Involvement and Regulatory Risks

Dragonfly has been recognized as a leading backer of Tornado Cash, making the venture capital firm’s internal communications of particular interest to federal prosecutors. The emails introduced in court show direct engagement between Dragonfly’s leadership and the Tornado Cash founders, including conversations regarding compliance measures and feedback on KYC. This could potentially undermine claims that Tornado Cash’s creators had deliberate criminal intent, suggesting instead that there may have been attempts to uphold regulatory standards.

Despite this, federal prosecutors appear to be exploring a cutting-edge legal theory: that venture capital investors could face criminal liability if software they backed is later misused, even when those investors never exercised control over the actual operations of the protocol. If the DOJ decides to indict Schmidt or other Dragonfly team members, it could set a transformative precedent, triggering widespread concern among cryptocurrency investors and startups involved with privacy-focused blockchain tools or open-source projects.

Broader Impact on Crypto Venture Capital and Privacy Tech

The Tornado Cash trial is now testing the boundaries of legal exposure for investors in the digital asset space. If criminal charges are brought against Schmidt, it may prompt venture investors to seek greater control over, or even avoid, funding decentralized or privacy-enhancing blockchain technologies. The move could stifle innovation, particularly in sectors focused on privacy, decentralization, and financial sovereignty.

The high-stakes legal battle continues for Tornado Cash founders Roman Storm and Roman Semenov, who face serious charges—ranging from conspiracy to commit money laundering to violating U.S. sanctions laws—with a potential combined sentence of up to 40 years. Prosecutors allege that the platform was intentionally used to facilitate illicit transactions, including those linked to the North Korean hacker group Lazarus. The defense maintains that Tornado Cash served as neutral, permissionless infrastructure within the Ethereum blockchain ecosystem.

As the case unfolds, the cryptocurrency industry watches closely. The outcome could redefine how venture capital interacts with blockchain startups, particularly those working on privacy protocols, decentralized finance (DeFi), and the broader crypto landscape.