Texas Court Dismisses Pharos Developer Lawsuit Over Money Transmitter Liability

A Texas federal court has dismissed a lawsuit filed by Michael Lewellen, a developer behind the crypto-based software Pharos, which is designed to facilitate donations to charitable crowdfunding campaigns. Lewellen had sought a declaratory judgment confirming that his software would not be prosecuted under U.S. money transmitter laws.

Chief U.S. District Judge Reed O’Connor dismissed the case on Wednesday, ruling that Lewellen failed to demonstrate a credible and immediate threat of prosecution. The decision cited a Department of Justice memo stating authorities would no longer target virtual currency exchanges, mixing services, or offline wallet providers for the actions of their users or unintentional regulatory violations. Lewellen expressed disappointment with the outcome and noted that non-binding guidance does not provide long-term legal certainty.

Previous Crypto Developer Prosecutions Raise Concerns

Lewellen, supported by advocacy group Coin Center, argued that past prosecutions created legitimate concerns for developers. He pointed to cases involving Roman Storm, co-founder of Tornado Cash, who was convicted of conspiracy to operate an unlicensed money-transmitting business, and the founders of Samourai Wallet, who were also found guilty on similar charges.

Judge O’Connor stated that those prosecutions centered on money laundering activity, distinguishing them from Lewellen’s case, where the software was intended for lawful business use without knowingly transmitting criminal funds.

Case Status and Push for Legislative Clarity

The case was dismissed without prejudice, meaning Lewellen can file a revised lawsuit in the future. His legal team is currently evaluating possible next steps.

Industry advocates, including Peter Van Valkenburgh, executive director at Coin Center, have called for passage of the Blockchain Regulatory Certainty Act of 2026, introduced by Senator Cynthia Lummis in January. The proposed legislation aims to clarify that developers of non-custodial software who do not control user funds should not be classified as money transmitters.

Disclaimer

This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.