A federal court in Texas has dismissed a lawsuit brought by crypto developer Michael Lewellen, holding that he failed to establish standing to challenge federal money transmitter laws before any enforcement action had been taken.
Chief Judge Reed O’Connor said Lewellen did not show a credible or imminent threat of prosecution under 18 U.S.C. 1960. Without that, the court found he could not demonstrate the required “injury in fact” needed to move the case forward. The dismissal was issued without prejudice, leaving room for Lewellen to file again if he can later point to a more concrete legal threat.
Pharos plan did not secure pre-enforcement relief
Lewellen had asked the court for a declaratory judgment stating that his planned software, Pharos, would not violate U.S. money transmission laws. He described Pharos as a non-custodial tool intended to facilitate crypto donations in crowdfunding. He also sought an injunction that would block authorities from applying those laws to his proposed business.
His argument centered on compliance. Because the software was designed to preserve privacy and limit access to user data, he said meeting registration requirements would be technically impossible. The court was not persuaded. It treated those concerns as speculative rather than evidence of a real and immediate enforcement threat.
Court separated software development from alleged criminal conduct
The ruling turned on standing. In the court’s view, Lewellen did not show that future enforcement was substantially likely.
Lewellen pointed to ongoing prosecutions involving developers of non-custodial crypto tools to support his claim of risk. The court rejected that comparison, noting that those matters involved alleged money laundering, not the mere creation or operation of software. Judge O’Connor drew a distinction between the technology used and the conduct at issue, saying similar tools do not automatically create similar liability. Based on the activity described in the complaint, Lewellen’s proposed platform would operate without taking possession of user funds, which the court did not consider comparable to prior enforcement cases.
The court also cited a U.S. Department of Justice memo indicating that prosecutors generally avoid targeting platforms for the actions of end users or for unintentional regulatory violations. That point weakened Lewellen’s claim that enforcement was close at hand.
The central regulatory question remains open
While the decision resolves this case for now, it does not answer the broader question facing the crypto sector: can developers of non-custodial software be treated as money transmitters under U.S. law?
The court declined to rule on that substantive issue and stayed on procedural ground instead. Legal clarity around decentralized tools remains unsettled. For developers building privacy-focused or non-custodial financial infrastructure, that uncertainty is still in place, and the decision shows how foundational questions in U.S. crypto regulation can remain unresolved even after litigation reaches federal court.