Pharos Standing Appeal: Similar Software, Different Conduct

The Pharos standing appeal concerns a proposed non-custodial cryptocurrency donation business whose developer challenged possible prosecution before launching it. The district court dismissed the challenge because the developer had not shown a credible threat of prosecution. Its reasoning turned on a distinction that matters to anyone who knows a crypto business from the inside: what the software allows users to do and what the people running the business actually do with it.

The district court’s opinion describes a developer who wanted to offer charitable crowdfunding software while keeping control of the cryptocurrency in users’ hands. He said his planned privacy technology would keep him from obtaining the user information reporting would require. The legal dispute grew out of the business he wanted to build around that design.

What Pharos Was Supposed to Do

Pharos would give users a tool for making cryptocurrency donations to charitable crowdfunding campaigns without putting the developer in control of their funds. The developer also said he had no intention of knowingly transmitting criminal funds.

The proposal involved both software other people would use and a website the developer would pay for and maintain. Describing the code alone leaves out the business he intended to run around it.

The opinion also recounts the developer’s argument that supplying the code resembled supplying an envelope someone else uses to mail a check. He drew a line between creating a tool people use to move money and acting as an intermediary moving customers’ money. His claimed lack of custody was central to that account.

The developer said he would not register that business as a federal money transmitter. His explanation connected registration to information: the planned privacy technology would make the required reporting impossible because he could not access the necessary information about users. He had held off launching the business and asked the court to declare his planned conduct lawful and prevent enforcement of the federal money-transmitting laws against it.

Privacy and reporting pull on the same information. The 2024 Wharton Initiative on Financial Policy and Regulation paper Anti-Money Laundering: Opportunities for Improvement puts the question plainly:

Pharos put that question into its design: the information the developer said reporting would require was information his software was designed to keep from him.

Why the Court Dismissed the Standing Challenge

The court dismissed the Pharos standing challenge because the developer had not shown a real risk of prosecution before launching the business.

In its March 25, 2026 opinion, the Northern District of Texas focused on the developer’s comparison with other cryptocurrency prosecutions. He pointed to cases involving similar non-custodial technology. The court looked at what the people in those cases were accused of doing.

The opinion identified money laundering as the central conduct in those prosecutions. The court found that the cited cases did not show a substantial threat of prosecution for his proposed activities.

The court also relied on the Justice Department’s April 7, 2025 memorandum, Ending Regulation by Prosecution. As the opinion described it, the department said it would not pursue virtual currency exchanges, mixing services and offline wallets for their users’ acts or unwitting regulatory violations. The court treated that policy as consistent with its distinction between the proposed Pharos business and the conduct in the prosecutions the developer invoked.

Similar Software, Different Conduct

The court separated the technology from the conduct carried out through it. Its central observation was direct:

That distinction becomes more concrete in the criminal cases the opinion cited. In the Tornado Cash prosecution, the government’s May 15, 2025 filing dropped the registration part of the money-transmission charge while retaining the part concerning criminal proceeds. The jury later convicted a founder of conspiring to operate an unlicensed money-transmitting business that knowingly transmitted criminal proceeds.

In the Samourai Wallet criminal case, the founders pleaded guilty to conspiring to operate a money-transmitting business that knowingly transmitted criminal proceeds, as the Justice Department described the pleas. The admitted conduct included knowledge of the funds passing through the business. That is the part of the comparison the Pharos opinion emphasized.

For an insider, the useful distinction is concrete. Who runs the service, what transactions it handles and what its operators know about those transactions tell a fuller story than the technology’s label. The same technical description can appear in cases built around very different conduct.

The Business Around the Code

Money transmission depends on the business’s actual role in moving value. The Financial Crimes Enforcement Network’s guidance on virtual-currency business models distinguishes an anonymizing service that accepts and retransmits value from a supplier of software users employ for their own transactions. It also distinguishes developing an application from operating a business that conducts transmission.

Custody has an operational meaning. In a hosted wallet, the provider receives, stores and transmits customer value with independent control. In an unhosted wallet, the user controls value for the user’s own transactions. Where several keys or approvals are involved, the actual arrangement matters. A product description cannot tell an insider who can authorize a transfer as clearly as the control records can.

Information access is another part of that picture. A public transaction hash can show a transfer, while exchange ledgers, wallet-control records and internal escalation records can explain who controlled the value, which customer an exchange credited and what staff knew. Those records answer different questions about the same movement of money.

Pharos makes these distinctions unusually visible because the developer put his intended lack of control and lack of user information into his account of the proposed business. In an operating service, an insider may know how those descriptions compare with the permissions, customer information and decisions inside the company. That is where our work with the insider begins.

The Pharos Standing Appeal Challenges the Dismissal

The developer filed an opening brief in the Fifth Circuit on July 1, 2026, appealing the standing dismissal.

The point for someone inside a crypto business remains the conduct: the role the business performs, its control over funds, the information available to it and its knowledge of the transactions. We work with insiders to connect those facts to the money-laundering or crypto fraud they have seen and identify the whistleblower program that fits their evidence.

For fraud involving government money, the False Claims Act offers a separate route. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know How the Business Runs

If you know who controls the wallets, what customer information the business holds or how it responds to criminal proceeds, talk with our whistleblower experts about what you have seen. We build the matter around your knowledge of the operation, bring in money-laundering and crypto fraud whistleblower lawyers, and stay beside you through the case.