Texas court dismisses crypto software liability case: Regulatory oversight of non-custodial developers remains uncertain

Gate News reports that in March 2026, a U.S. federal court in Texas dismissed a key lawsuit filed by developer Michael Lewellen, which aimed to confirm that his crypto software is not subject to U.S. remittance laws. This highlights the ongoing uncertainty surrounding the legal boundaries for non-custodial crypto tools under current regulations.

The case involved Lewellen’s Pharos tool, designed to support charitable crowdfunding donations. Chief U.S. District Judge Reed O’Connor stated in his ruling that the plaintiff failed to demonstrate an “imminent threat of prosecution,” and therefore lacked a sufficient legal basis to bring the suit. The court also noted that this dismissal is not final; Lewellen can refile the case with additional evidence.

During the proceedings, the court referenced a memo from the U.S. Department of Justice, which indicated that federal prosecutors generally do not pursue enforcement actions against virtual currency service providers—including exchanges, mixing services, and non-custodial wallet developers—even if their activities may border on regulatory violations. However, Lewellen argued that such non-binding documents cannot replace clear legislation and do not provide long-term protections for developers.

Lewellen also cited cases involving Tornado Cash and Samourai Wallet, pointing out that developers involved in similar issues have faced criminal charges, illustrating the real industry risks. Judge O’Connor emphasized that those cases centered on money laundering, whereas this case is more about the nature of business operations, and the legal bases differ.

Coin Center, a crypto policy organization supporting the lawsuit, stated that the current regulatory environment remains uncertain for software developers. Its Executive Director, Peter Van Valkenburgh, called on Congress to advance the “2026 Blockchain Regulatory Certainty Act” proposed by Cynthia Lummis, to clarify that non-custodial developers who do not control user assets should not be considered remittance service providers.

While the case did not set a binding industry precedent, it sends an important signal: in the U.S., the legal boundaries between crypto software development and financial regulation are still evolving, and legislative progress will be a key factor influencing the industry’s future.