In a landmark legal challenge that could redefine the boundaries of software development and financial regulation, Michael Lewellen has filed an opening brief in the U.S. Court of Appeals for the Fifth Circuit. The filing marks a critical juncture in the ongoing debate over whether the act of writing and publishing open-source code constitutes "money transmission" under federal law. Lewellen, supported by the advocacy group Coin Center, is seeking a pre-enforcement judgment to protect developers from what he describes as a credible threat of prosecution under 18 U.S.C. § 1960, a statute originally designed to target unlicensed money transmitters.
The case arrives at a time of heightened tension between the decentralized finance (DeFi) community and federal prosecutors. By bringing this action, Lewellen aims to establish a legal shield for developers who create non-custodial software—tools that allow users to manage their own assets without a third-party intermediary. The outcome of this litigation could determine the future of financial privacy and the extent to which the First Amendment protects the publication of computer code in the United States.
The Core of the Legal Dispute: 18 U.S.C. § 1960
At the heart of the litigation is 18 U.S.C. § 1960, a federal law that makes it a felony to operate an "unlicensed money transmitting business." Historically, this statute has been applied to traditional financial institutions, such as wire transfer services or currency exchanges, which take physical or digital custody of a customer’s funds to move them from one point to another.
However, in recent years, the Department of Justice (DOJ) has expanded its interpretation of this law to include developers of privacy-enhancing software and decentralized protocols. The government’s theory suggests that even if a developer never touches a user’s funds, the act of providing the software that facilitates those transfers could be classified as money transmission.
Lewellen’s brief argues that this interpretation is a radical departure from the law’s original intent. His software, which focuses on non-custodial crowdfunding, does not involve the developer taking possession of any capital. Instead, the code functions as a set of instructions that users can choose to execute on a blockchain. Lewellen contends that classifying the publication of such instructions as "money transmission" is not only a misreading of the statute but also a violation of due process and free speech rights.
The Chilling Effect of Recent Prosecutions
The urgency of Lewellen’s filing is driven by a series of high-profile prosecutions initiated by the U.S. Attorney’s Office for the Southern District of New York (SDNY). Two cases, in particular, have sent shockwaves through the global developer community:
- Tornado Cash: The DOJ indicted the founders of Tornado Cash, a privacy protocol on the Ethereum blockchain, alleging they operated an unlicensed money-transmitting business and conspired to commit money laundering. The prosecution argues that because the developers maintained the code and a front-end website, they were responsible for the illicit funds that moved through the protocol.
- Samourai Wallet: Similar charges were brought against the creators of Samourai Wallet, a non-custodial Bitcoin wallet. In this instance, the government argued that the developers’ "mixing" service constituted money transmission, despite the fact that the private keys—and thus the control over the funds—remained with the users at all times.
Lewellen’s brief highlights that these cases have created a "well-founded fear" among developers. Without a clear ruling on the limits of § 1960, developers of any financial software are left to guess whether their work will eventually lead to a felony indictment. This uncertainty has led to a significant "chilling effect," with many innovators choosing to cease their work, move their operations outside of the U.S., or refrain from publishing code altogether.
A Chronology of Regulatory Tension
The path to the Fifth Circuit has been marked by a decade of evolving regulatory guidance and shifting enforcement priorities:
- 2013: The Financial Crimes Enforcement Network (FinCEN) issues its first major guidance on virtual currencies, distinguishing between "users" and "administrators" or "exchangers" of virtual currency.
- 2019: FinCEN clarifies that "unhosted" (non-custodial) wallet providers are generally not money transmitters because they do not accept and transmit value on behalf of others.
- 2022: The Treasury Department’s Office of Foreign Assets Control (OFAC) sanctions the Tornado Cash smart contracts, the first time a piece of code, rather than a person or entity, is placed on a sanctions list.
- 2023-2024: The DOJ shifts from targeting users of illicit services to targeting the developers of the underlying open-source protocols themselves.
- 2025: Internal administration memos (including the "Blanche Memo") attempt to clarify that software development is not a crime, yet the DOJ refuses to issue binding rules or admit that non-custodial code is exempt from § 1960.
- July 2, 2026: Michael Lewellen files his opening brief in the Fifth Circuit, demanding a definitive ruling on the constitutionality of these prosecutions.
The Constitutional Argument: Code as Speech
One of the most significant aspects of Lewellen’s brief is the invocation of the First Amendment. The argument that "code is speech" has its roots in the "Crypto Wars" of the 1990s, specifically the case of Bernstein v. U.S. Department of Justice. In that case, the court ruled that computer source code is a form of expression protected by the First Amendment because it is a language used by scientists and mathematicians to communicate ideas.
Lewellen’s legal team argues that publishing software for crowdfunding is a form of expressive conduct. By writing code, Lewellen is communicating a specific set of logic and functionality to the world. If the government can require a license to publish that code—or threaten imprisonment for doing so—it is essentially imposing a prior restraint on speech.
SEC Commissioner Hester Peirce has echoed these sentiments in various public dissents, noting that "Publishing code is speech, which the First Amendment protects." Lewellen’s brief leverages this perspective, arguing that the government cannot bypass constitutional protections simply by labeling the speech as a financial service.
The Failure of "Noblesse Oblige"
The brief also addresses the current administration’s stance on the issue. While some officials have issued memos (such as the Blanche memo) suggesting a more lenient approach toward developers, Lewellen argues that these are merely "promises of powerful men" rather than the "certainty of law."
The DOJ has repeatedly refused to stipulate that non-custodial software development is inherently legal. This leaves developers at the mercy of "prosecutorial discretion"—a concept the brief describes as noblesse oblige. Lewellen asserts that in a society governed by the rule of law, citizens should not have to rely on the temporary kindness or restraint of the executive branch. Instead, they deserve clear, binding judicial interpretations of the statutes that govern their conduct.
As the brief states: “A society founded on the rule of law does not want individuals to ‘bet the farm’ by breaking the law first and vindicating their rights second.”
Broader Implications and Industry Impact
The outcome of Lewellen v. Department of Justice (or the relevant government agency) will have profound implications for the U.S. technology sector. Industry analysts suggest that if the Fifth Circuit sides with the government, it could lead to an "innovation drain."
Data from developer activity reports suggests that the U.S. share of global open-source crypto development has already begun to slip. In 2018, the U.S. hosted approximately 40% of the world’s crypto developers; by late 2025, that number had dropped toward 25%, with developers moving to jurisdictions like Switzerland, Singapore, and the United Arab Emirates, where the legal status of non-custodial code is more clearly defined.
Furthermore, the case touches on the fundamental right to privacy. Many open-source projects are designed to provide users with financial anonymity, a tool essential for activists, journalists, and citizens in authoritarian regimes. If developers are held liable for how their tools are used by third parties, the development of privacy-preserving technology will likely stall, leaving users more vulnerable to surveillance and data breaches.
Conclusion: Waiting for the Court’s Ruling
As the Fifth Circuit prepares to hear the case, the legal and tech communities remain on high alert. Michael Lewellen’s challenge is not just about a single crowdfunding tool; it is a defense of the principle that writing code is a protected act of creation and communication.
By seeking a pre-enforcement judgment, Lewellen is asking the judiciary to reassert its role as the final arbiter of the law, ensuring that the limits of federal power are defined by the Constitution and the halls of Congress, rather than the shifting priorities of federal prosecutors. For the thousands of developers currently working on the next generation of the internet, the decision of the court will determine whether they can continue their work in the United States or if they must seek refuge in more hospitable legal climates.
