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Group behind the Tornado Cash lawsuit loses to the US Treasury

TL;DR

  • A lawsuit against the US Treasury by 6 individuals backed by Coinbase goes south in a mega loss.
  • Judge Robert Pitman states that Tornado Cash is a legal entity that has a property interest in its smart contracts. 
  • The judge rejected the Treasury Department’s claim that Tornado Cash is not an entity, saying that the mixer’s DAO was designated.
  • Last year, OFAC sanctioned Tornado Cash for assisting North Korea’s Lazarus Group launder crypto cash from decentralized exchanges and games like Axie Infinity.
  • Coinbase Chief Legal Officer Paul Grewal says that the company will support an appeal.

A federal judge in Texas has sided with the United States Department of the Treasury by granting a motion for summary judgment in a lawsuit brought by six individuals sponsored by the cryptocurrency exchange Coinbase against Tornado Cash.

The group of crypto investors and developers backed by Coinbase argued the U.S. Treasury Department abused its authority by sanctioning Tornado Cash, a mixing service that anonymizes crypto transactions.

Tornado Cash remains sanctioned

In a filing dated August 17 in the U.S. District Court for the Western District of Texas, Judge Robert Pitman denied a motion for partial summary judgment filed in April by plaintiffs Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch in a case involving the controversial mixer Tornado Cash.

However, Pitman granted a comparable motion filed by the United States Treasury Department.

This case is about Tornado Cash—but the parties disagree on how to characterize Tornado Cash […] Plaintiffs argue that [Treasury’s Office of Foreign Assets Control]’s designation of Tornado Cash exceeds the Department’s statutory authority over foreign nationals’ interests in property and violates the Free Speech Clause […] The government, on the other hand, argues that Tornado Cash is an entity that may be designated and that it has a property interest in the smart contracts.

Judge Robert Pitman

The judge found ridiculous an argument that Tornado Cash is not a legal entity, writing that the Treasury Department designated an entity, which includes the decentralized autonomous organization, or DAO, that controls the mixer.

The DAO is an entity unto itself that, through its voting members, has demonstrated an agreement to a common purpose. As the government notes, the structure is not unlike that of stockholders of a corporation who may not intend to vote in a shareholder meeting, without this affecting the structure of the entity.

Judge Robert Pitman

The Office of Foreign Assets Control (OFAC) of the U.S. Treasury Department added Tornado Cash to its list of Specially Designated Nationals in August 2022. Several crypto users criticized the action as an abuse of authority. 

In September 2022, the six aforementioned individuals, supported by Coinbase, filed a lawsuit against the government agency in an effort to reverse the designation. In October, the crypto advocacy group Coin Centre followed suit.

What will happen next?

Judge Pitman largely rejected the plaintiffs’ arguments, determining that Tornado Cash was “an entity that may be designated per OFAC regulations” and that its inclusion on a list of sanctioned entities did not exceed Treasury’s statutory authority and was “not plainly inconsistent with its regulations.” 

The ruling stated that developers could analyze and teach the mixer’s code but not “execute it and use it to conduct cryptocurrency transactions.”

Paul Grewal, the chief legal officer of Coinbase, responded to the judge’s ruling on X by stating that the exchange intended to file an appeal with the Fifth Circuit:

Coinbase is currently entangled in a litigation dispute with the Securities and Exchange Commission, which was filed in June. Despite the fact that the OFAC and SEC cases are vastly different, Grewal has made identical arguments in both, contending in the latter that the commission’s enforcement action against the crypto exchange exceeded its congressionally authorized jurisdiction.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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