U.S. Prosecutors Weigh Charges Against Dragonfly Capital Over Tornado Cash Investment

U.S. prosecutors are reportedly considering criminal charges against employees of crypto venture firm Dragonfly Capital, including general partner Tom Schmidt, for the company’s 2020 investment in Tornado Cash. The privacy-focused protocol is at the center of a high-profile trial against developer Roman Storm, who faces conspiracy charges tied to money laundering, operating an unlicensed money-transmitting business, and violating international sanctions.

The discussion emerged in open court before Southern District of New York Judge Katherine Polk Failla during Storm’s ongoing trial. Prosecutor Nathan Rehn confirmed the Department of Justice (DOJ) is reviewing potential charges against Schmidt and another unnamed Dragonfly employee. The exchange occurred after Storm’s defense sought Schmidt’s testimony, which prosecutors refused to grant immunity for, prompting him to plead the Fifth Amendment.

Messages between Storm and Dragonfly partners, including Schmidt and managing partner Haseeb Qureshi, were presented by the prosecution to highlight venue jurisdiction, alleged profits, and Tornado Cash’s evolving user interface. Following the disclosure, the judge sealed that portion of the court transcript.

In response, Qureshi defended the firm’s investment on X (formerly Twitter), emphasizing support for privacy rights and denying involvement in Tornado Cash operations or contact with malicious actors. He called potential charges “unprecedented” and warned of a chilling effect on investments in privacy technologies.

Qureshi added that Dragonfly has fully cooperated with the DOJ since its investigation began in 2023, arguing that charges would be “contrary to the facts” and vowing a vigorous defense if pursued. The case underscores mounting regulatory scrutiny on privacy tools and venture capital participation in the crypto sector.