Here are the detailed, narrative-driven show notes for the podcast episode, tailored for Crypto AI investors and researchers.
This episode dissects the Roman Storm verdict, revealing a critical legal battle where the DOJ's aggressive prosecution of an open-source developer clashes with established regulatory guidance, setting a precarious precedent for all software creators in crypto.
The Verdict's Aftermath: A State of "Thorough Chaos"
- The episode opens with an immediate analysis of the Roman Storm verdict, which David Morris, a journalist who covered the trial from the courtroom, describes as reflecting "thorough chaos." The proceedings were marked by constant, granular debates over evidence and witness testimony, creating significant uncertainty.
- The jury's verdict was mixed: a guilty verdict on one count and a hung jury on the other two. A hung jury occurs when jurors cannot reach a unanimous decision, resulting in a mistrial for those specific charges.
- David highlights the prosecution's struggles to definitively link certain transactions to Tornado Cash, noting a key jury question about whether intermediary wallets were also sanctioned. This points to potential weaknesses in the government's evidence.
- The confusion and ambiguity of the verdict are seen as a direct reflection of the case's complexity and the challenging legal questions presented to the jury.
The Three Conspiracy Charges Explained
- Peter Van Valkenburgh of Coin Center provides a clear breakdown of the three conspiracy charges against Roman Storm. He emphasizes that all were conspiracy charges, which only require proving an agreement to commit a crime and one tangible step toward it, a lower bar than proving the crime itself was completed.
- Count 1: Conspiracy to Commit Money Laundering: Knowingly helping to hide the proceeds of a crime. This resulted in a hung jury.
- Count 2: Conspiracy to Operate an Unlicensed Money Transmitter: Transmitting money without a license while knowing the funds were from illicit activity. Roman Storm was found guilty on this count.
- Count 3: Conspiracy to Violate Sanctions: Conspiring to help a sanctioned entity, the North Korean Lazarus Group, evade U.S. sanctions. This also resulted in a hung jury.
- Peter, with his legal expertise, argues the case was weak, particularly on the conspiracy element. He states, "There isn't evidence that Roman, you know, got on the phone with somebody else in the world and said, 'Ah, I know you've got some illicit funds... I'll help you hide them.'"
Breaking Down the Verdict and Its Implications
- The verdict carries significant, though mixed, implications for Roman Storm personally and for the broader crypto industry.
- Personal Outcome: While the maximum sentence across all charges was 45 years, the single guilty verdict carries a maximum of five years. The two hung jury counts mean the government can choose to retry Roman on those charges.
- A Key Procedural Win: The prosecution moved to have Roman jailed immediately, arguing he was a flight risk. The judge denied this motion, allowing him to remain out on bail pending sentencing and appeal.
- Judicial Acknowledgment of Appeal: Crucially, the judge openly stated there were "many roads to appeal" on the conviction, signaling that the legal questions at the heart of the case are far from settled. This provides a strong basis for the defense's next steps.
The Legal Crux: Unlicensed Money Transmission vs. Regulatory Guidance
- The conviction for operating an unlicensed money transmitter is the most contentious and alarming outcome for the crypto industry. Peter explains that this charge directly contradicts years of regulatory guidance.
- In 2019, FinCEN—the primary U.S. regulator for money transmission—issued guidance stating that non-custodial software developers who lack "total independent control of customer funds" are not considered money transmitters and do not need to register.
- The prosecution successfully argued, and the judge agreed, that the criminal code's definition of money transmission (18 USC 1960) is broader than FinCEN's regulatory definition. This created a legal trap where a developer could be compliant with the regulator's rules but still face criminal prosecution.
- Strategic Implication: This creates a massive due process issue. Developers and investors cannot rely on regulatory guidance if prosecutors can apply a different, broader, and unclarified standard. This legal ambiguity is a direct threat to innovation in non-custodial finance.
Inside the Jury's Decision: Knowledge vs. Intent
- The split verdict likely hinged on the different mental states required for each charge. Peter clarifies that the money laundering and sanctions charges required proving specific intent, while the unlicensed money transmission charge only required proving knowledge that illicit funds were passing through the system.
- The jury was instructed to evaluate Roman as a money transmitter, which carries a lower burden of proof for "knowing" involvement with criminal funds.
- Because the judge had already accepted the prosecution's broad definition of a money transmitter, the jury's task was narrowed to deciding if Roman had general knowledge of illicit use, a much easier standard for the prosecution to meet.
- This legal framing, rather than the jury's interpretation of facts, is what likely led to the guilty verdict on the second count.
The Alarming Precedent for All DeFi Developers
- The speakers warn that the DOJ's legal theory is not limited to privacy-preserving tools like Tornado Cash. The broad interpretation of money transmission could be applied to almost any non-custodial protocol.
- Peter states that under the government's theory, any developer of a DeFi protocol like Uniswap, or even a Bitcoin core developer, could be classified as a money transmitter if their software is used by criminals.
- The case revealed the prosecution's wide net, which even considered investors from Dragonfly Capital as potential subjects of the investigation, chilling investment in the space.
- Actionable Insight: This verdict establishes a dangerous, albeit non-binding, precedent. Investors and researchers must understand that any non-custodial project, regardless of its primary function, could face similar legal risks until a higher court or Congress provides clarity.
Three Paths to a Favorable Outcome
- Roman Storm's Appeal: The defense will appeal the conviction to a higher court, arguing that the judge misinterpreted the law. Key arguments will be the Rule of Lenity (ambiguous laws should be interpreted in favor of the defendant) and the Due Process violation (convicting someone based on unclear or contradictory rules).
- The Michael Llewellyn Case: Coin Center is supporting a developer suing the DOJ in Texas for a "declarative judgment" that his non-custodial software is not an unlicensed money transmission business. A favorable ruling here could create a protective precedent.
- The Blockchain Regulatory Certainty Act (BRCA): This legislation, which has already passed the House, would codify into law that non-controlling blockchain developers are not money transmitters. Its passage in the Senate would provide a definitive, forward-looking solution.
Conclusion
The Roman Storm verdict, while convicting on one count, has galvanized the crypto industry. It exposes the DOJ's aggressive stance on open-source software but also illuminates clear legal and legislative paths to protect developers. Investors must now closely track the upcoming appeal and the Blockchain Regulatory Certainty Act.
