Court sides with government in Coinbase-backed lawsuit over Tornado Cash sanctions

Quick Take

  • A district court judge sided with the Treasury Department in a lawsuit backed by Coinbase over Tornado Cash sanctions. 

A district court judge sided with the Treasury Department in allowing a summary judgment, going against six plaintiffs who said that the agency exceeded its authority when it sanctioned crypto mixer Tornado Cash last year.

“It is ordered that Plaintiffs Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch’s Motion for Partial Summary Judgment, is denied,” Judge Robert Pitman said in a court filing on Thursday in the U.S. District Court for the Western District of Texas. 

Several employees of Coinbase filed suit last year to roll back the sanctions, with the crypto exchange financially backing the suit. The sanctioning drew an uproar from crypto advocates, including nonprofit Coin Center, the Blockchain Association and Coinbase. 

Tornado Cash is an open-source software that can be used to anonymize transactions on the Ethereum blockchain. The Treasury Department sanctioned Tornado Cash last year and its Office of Foreign Assets Control added the mixer to its Specially Designated Nationals list, which bars people in the U.S. and firms looking to operate in the U.S. from financial interactions with them. 

Judge says Tornado Cash is more than just software

The six argued that the designation exceeded statutory powers because Tornado Cash is not a person and is software, which Pitman disagreed with. Pitman said Tornado Cash has founders, developers and a decentralized autonomous organization which governs the platform.  

“The Court finds that Tornado Cash is an association within the ordinary meaning of the term and is therefore an entity that may be designated per OFAC regulations,” Pitman said.

Paul Grewal, Coinbase’s chief legal officer, seemingly suggested that an appeal would be coming. 

"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," Grewal wrote on X, or Twitter. "Rights are rarely secured on a path that is always ⬆️ and ➡️."

Updated to add details throughout 

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