The U.S. Department of Justice is contemplating criminal charges against Dragonfly Capital's Tom Schmidt and other partners due to the firm's investment in the developers of Tornado Cash. Federal prosecutors revealed this potential action during Roman Storm's criminal trial in New York. Dragonfly invested in Pepper Sec Inc., owned by Tornado developers, in 2020. Defense attorneys attempted to call Schmidt as a witness during the trial, but he invoked the Fifth Amendment against self-incrimination. Tornado Cash, an Ethereum-based coin mixer, was created to enhance user privacy, but has faced scrutiny for its alleged use in criminal activities. Storm could face a 45-year prison sentence for supposedly managing an unlicensed money-transmitting business and money laundering. Despite the potential charges against Dragonfly, co-founder Haseeb Qureshi expressed confidence in their compliance with laws, stating their commitment to defend against these claims. The investigation raises significant concerns about the legal responsibility of software developers for user actions on decentralized platforms.

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