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 concerning Tornado Cash brought by six individuals backed by crypto exchange Coinbase.
In an Aug. 17 filing in the U.S. District Court for the Western District of Texas, Judge Robert Pitman denied a motion filed in April by plaintiffs Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch requesting partial summary judgment in a case over controversial mixer Tornado Cash. Pitman, however, granted a similar motion filed by the U.S. Treasury Department.
“This case is about Tornado Cash — but the parties disagree on how to characterize Tornado Cash,” said Pitman. “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.”
In August 2022, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added Tornado Cash to its Specially Designated Nationals list. Many crypto users criticized the move as an overreach of authority. The six aforementioned individuals, with the support of Coinbase, filed a lawsuit against the government department in September 2022, seeking to reverse the designation. Crypto advocacy group Coin Center followed with its own suit in October.
Pitman largely dismissed the plaintiffs’ arguments, ruling that Tornado Cash was “an entity that may be designated per OFAC regulations,” and its addition to a list of sanctioned entities did not exceed Treasury’s statutory powers and was “not plainly inconsistent with its regulations.” The ruling claimed developers could analyze and teach the code behind the mixer but not “execute it and use it to conduct cryptocurrency transactions.”
Coinbase chief legal officer Paul Grewal reacted to the judge’s decision on X (formerly Twitter), saying the exchange intended to support an appeal to the Fifth Circuit.
Rights are rarely secured on a path that is always ⬆️ and ➡️. We continue to believe Plaintiffs’ challenge to OFAC’s Tornado Cash action is right. We’ve always known that Fifth Circuit review is required to resolve these issues, and we continue to support them on appeal. 1/4 pic.twitter.com/Tz8FkFCSf2
— paulgrewal.eth (@iampaulgrewal) August 17, 2023
Coinbase is currently embroiled in a civil case with the U.S. Securities and Exchange Commission (SEC) filed in June. Though the OFAC and SEC cases are significantly different, Grewal has made similar arguments in both lawsuits, claiming in the latter the commission’s enforcement action against the crypto exchange represented an overreach in its authority granted by Congress.