Venture firm Dragonfly could face federal charges for its early investment in the developers behind Tornado Cash, a crypto mixer at the center of a high-profile legal battle. The U.S. government is reportedly reviewing whether Dragonfly’s 2020 backing of PepperSec, Inc. — the team behind Tornado Cash — violated any laws.
Dragonfly co-founder Haseeb Qureshi confirmed on Friday that prosecutors mentioned the possibility of charges in court during the ongoing criminal trial of Tornado Cash co-founder Roman Storm.
“We made this investment because we believe in open-source privacy-preserving technology,” Qureshi posted on X, adding that the firm consulted outside legal counsel before investing and was told Tornado Cash was compliant at the time.
Storm is currently on trial in New York, facing federal charges of money laundering and sanctions violations. Prosecutors argue that Tornado Cash — which obscures blockchain transaction histories by pooling and redistributing crypto — was used to hide illicit funds. He could face decades in prison if convicted.
Tornado Cash was sanctioned by the U.S. Treasury’s Office of Foreign Assets Control in 2022 for allegedly helping launder billions of dollars, including funds linked to cybercrime and state-sponsored hacking. While sanctions were later eased in 2025, the legal fallout continues.
Qureshi dismissed the idea that charges against Dragonfly would hold up in court. “We don’t believe the DOJ would actually bring such absurd and groundless charges,” he said. “But if they do, we intend to vigorously defend ourselves.”
Despite the regulatory pressure, Tornado Cash remained active, seeing $1.9 billion in deposits in the first half of 2024, according to data from Flipside Crypto.
The case has drawn sharp lines between developers who say they built neutral privacy tools and regulators who argue the platform was used to cover illegal activity. Prosecutors rejected defense claims that Tornado Cash was simply code, pointing instead to its real-world impact.
Earlier this week, Storm’s lawyers failed in an attempt to declare a mistrial after one witness admitted they hadn’t interacted with the protocol directly. Testimony from an Ethereum core developer was also heard before prosecutors rested their case.
