Allegations of misconduct emerge as defense claims SDNY ignored regulator’s guidance in criminal prosecution
Federal prosecutors from the Southern District of New York (SDNY) are facing accusations of withholding critical exculpatory evidence in their case against Samourai Wallet developers Keonne Rodriguez and William Lonergan Hill. According to a recent defense filing, SDNY failed to disclose that the Financial Crimes Enforcement Network (FinCEN) had advised them that Samourai Wallet did not meet the criteria of a money services business (MSB).
FinCEN Warned Against Charges—Prosecutors Proceeded Anyway
The claim, revealed in a letter submitted by the defense, centers on communications between FinCEN and SDNY that occurred before the developers were indicted. The discussions reportedly concluded that Samourai Wallet’s non-custodial model—where the service does not control users’ private keys—meant it was unlikely to fall under MSB regulation.
Despite this, prosecutors allegedly explored charges based on what they termed “functional control,” referencing Samourai’s management of the user interface and coordination infrastructure. Internal notes revealed concerns within the prosecution that such a legal theory was unsupported by existing regulatory guidance and could prove difficult to uphold in court.
Brady Disclosure Sparks Legal Challenge
These communications came to light only after the defense successfully invoked a Brady motion, compelling the government to disclose materials favorable to the accused. Federal law requires that such information be shared within two weeks of an indictment. The defense argues that the delay in disclosure influenced earlier court decisions on bail and procedural motions.
Calling for a hearing on possible remedies, the defense is now seeking the dismissal of the case. “This prosecution represents a textbook case of regulation by enforcement,” the filing states, accusing prosecutors of acting in defiance of both FinCEN’s guidance and a recent memo from Deputy Attorney General Lisa Monaco, which discourages bringing novel regulatory interpretations through criminal charges.
FinCEN Guidance Undermines Government’s Legal Theory
FinCEN’s position, consistent with its 2019 advisory, emphasizes that only custodial services with “total independent control” over customer funds fall under MSB rules. Non-custodial wallet providers like Samourai—who facilitate transactions but do not access funds—typically fall outside this category.
Legal scholars and digital rights groups have long criticized the government’s approach to cases involving privacy-focused cryptocurrency tools, such as Samourai Wallet and Tornado Cash. Critics argue that these prosecutions conflate software development with money transmission, creating legal uncertainty and stifling innovation.
Pattern of Overreach? Tornado Cash Case Raises Red Flags
Tornado Cash developer Roman Storm, whose own Brady motion was denied last year, noted that SDNY consulted FinCEN about Samourai Wallet’s legal status on the very day he was arrested. This, he suggests, indicates a pattern of overreach by prosecutors aware of the tenuous basis for their indictments.
Zack Shapiro, head of policy at the Bitcoin Policy Institute, described the situation as a “clear case of criminalizing code,” warning that such prosecutions bypass the rule of law and contradict the crypto policy framework established during the Trump administration.
Experts Call for Dismissal and DOJ Reassessment
Anti-money laundering specialist J.W. Verret labeled the government’s conduct a “serious ethical lapse” that could invalidate the entire case. Others, like Peter van Valkenburgh of CoinCenter, argue the DOJ’s ongoing pursuit of unlicensed money transmission charges flies in the face of longstanding FinCEN interpretations.
“If FinCEN told prosecutors Samourai didn’t need a license, and the developers acted accordingly, then there’s no legal basis for criminal charges,” the defense concluded.
As calls mount for the Department of Justice to reevaluate its strategy on crypto-related enforcement, the Samourai Wallet case may become a pivotal test of how far prosecutors can stretch regulatory definitions—and whether the courts will allow it.