Tornado Cash fallout deepens: Dragonfly warns of ‘chilling effect’ on U.S. crypto
Key Takeaways
Dragonfly co-founder Haseeb Qureshi has vowed to fight and stand by their investment in Tornado Cash as the DoJ mulls charges against the VC firm.
The U.S. Department of Justice (DoJ) is reportedly considering criminal charges against crypto VC Dragonfly. The firm could be implicated for its early investment in crypto mixer Tornado Cash.
Haseeb Qureshi, managing partner at Dragonfly, confirmed that the DoJ was considering charges against the firm for its investment made in 2020. But he vowed to defend it.
“We therefore stand by our investment… We don’t believe the DOJ would actually bring such absurd and groundless charges. But if they do, we intend to vigorously defend ourselves.”
Source: X
Why DoJ’s move will be unprecedented
He was reacting to revelations made during the ongoing U.S. vs. Roman Storm case.
According to Inner City Press, there was a last-minute session called by Judge Katherine Failla centred around Dragonfly’s role in the Tornado Cash case.
Hasseeb said that they invested in Peppersec, the Tornado Cash developer. He noted that they were confident that, as investors, they were operating within the law.
He added that they were approached in 2023 to help investigate Tornado Cash and were assured that the firm was not under scrutiny.
The Ethereum[ETH]-based non-custodial crypto mixer is alleged to have facilitated money laundering for North Korean threat actors.
In the past, the DoJ has only gone after founders, developers, and users of alleged illicit crypto platforms. Think of the Binance founder CZ, FTX’s CEO Sam Bankman-Fried, and Tornado Cash developer Roman Storm.
If it goes forward with the Dragonfly charges, it would be the first time, the DoJ goes after early investors backing crypto protocols.
Potential impact on crypto sector
Haseeb added that such a development would affect future crypto investments in the U.S.
“It would induce a chilling effect on all investment into crypto and privacy-preserving technologies in America.”
The crypto community rallied behind Dragonfly and Storm. Fellow crypto investor Balaji Srinavasan stated that,
“Privacy is not a crime.”
Similarly, Paradigm’s Matt Huang slammed the DoJ, adding that it’s not a crime to write code and going after VCs that back developers is ‘absurd.’
Source: X
For his part, Jake Chervinsky noted that the fight for Tornado Cash was an ‘existential’ threat for the sector that seeks to advance privacy.
That said, Tornado Cash was sanctioned in 2022 for the alleged facilitation of money laundering during the Biden Administration.
It was later lifted from the sanctioned list in March 2025 when President Donald Trump resumed office. But the developers are yet to be cleared.
With early investors now under scrutiny, too, it remains to be seen how the case will evolve.