New York Federal Prosecutors Intensify Crackdown on Top Crypto Executives - Terraform Labs, Tornado Cash, and Samourai Wallet
As the rise of digital assets transforms finance into a more complex and innovative landscape, prosecutors are close behind, sharpening their tools and mastering the intricacies of the digital frontier. The prosecutorial precipice for their advancement was first crossed in a significant way in 2022, when FTX—the world’s second-largest crypto exchange at the time—collapsed after its founder, Sam Bankman-Fried, illegally commingled customer funds with those of FTX’s trading affiliate. The result: more than $8 billion in customer losses. New York federal prosecutors subsequently won convictions against Bankman-Fried across the board, sending him to prison for 25 years.
This prosecutorial success set the stage for subsequent actions, including recent cases targeting the founders of Terraform Labs, Samourai Wallet, and Tornado Cash. These enforcement actions underscore the critical importance of developing and adhering to compliance standards in the evolving digital asset landscape.
CASE STUDIES
Terraform Founder Facing 12 Year Prison Sentence: Do Hyeong Kwon, co-founder and former CEO of Terraform Labs, developed and promoted a purported stablecoin that was pegged to a pricing algorithm, in contrast to traditional stablecoins, which are typically pegged to government-backed fiat currencies such as the U.S. dollar. New York federal prosecutors alleged that Kwon made false statements about the stability and efficacy of the pricing algorithm to create the illusion of reliability. On August 12, 2025, Kwon pled guilty to a series of conspiracy charges tied to Terraform Labs that expose him to 12 years in prison, a $19 million forfeiture, and potential deportation to South Korea.
Samourai Wallet Founders Facing 5 Year Prison Sentences and $237.8 Million Forfeiture: Keonne Rodriguez and William Lonergan, co-founders of Samourai Wallet, developed a crypto mixing service that pooled users’ cryptocurrency deposits and returned the coins to different crypto addresses, breaking the direct link between the original sending electronic address and the receiving electronic address. This break in the financial chain made it much more difficult for law enforcement to trace the flow of funds. New York federal prosecutors alleged that Samourai Wallet’s mixing services were used by other wrongdoers to launder over $200 million in funds that were illegally obtained through several major hacking events and other fraud campaigns. Key to the prosecutions were Samourai Wallet founders’ social media statements, encouraging hackers to use their platform to clean “dirty” bitcoin. On July 30, 2025, Samourai Wallet’s founders pled guilty to operating an unlicensed money transmitting business, exposing them to 5-year prison sentences and a $237.8 million forfeiture.
Tornado Cash Founder Facing 5 Year Prison Sentence: Roman Storm, founder of Tornado Cash, was recently convicted of operating an unlicensed money-transmitting business for providing crypto mixing services similar to those offered by Samourai Wallet. However, unlike the Samourai Wallet founders, who pled guilty before trial, Storm’s case went to a jury. The jury deadlocked on the more serious money laundering and sanctions violations charges but convicted him on the lesser charge of operating an unlicensed money-transmitting business. Prosecutors have not yet indicated whether they will retry him on the unresolved charges.
WHY THESE CASES MATTER
Crypto Leaders Face Personal Risk: When communicating with the market—whether through marketing claims, SEC filings, social media, or otherwise—crypto leaders are legally obligated to disclose all material facts truthfully, or risk criminal prosecution. Federal prosecutors and regulators have repeatedly shown their ability to bring complex cases and present them in ways that are understandable and persuasive to juries. Thus, even in the technologically advanced digital asset era, crypto leaders cannot rely on those complexities to evade government scrutiny.
Avoiding Jail and Other Sanctions (The Call for Compliance): Government investigators’ tools have evolved alongside technological progress. In 1872, the federal mail fraud statute was enacted to address crimes that exploited the accelerated communication capabilities of the mail system. In 1952, the federal wire fraud statute followed to cover schemes that took advantage of the enhanced speed and reach of the telephone network. Today, technological advances in financial systems and artificial intelligence exponentially expand the possibilities for innovation—and for misuse. Yet it would be a mistake to assume investigators are unprepared for these challenges. Digital asset leaders—often under intense pressure to rush products to market—must implement robust compliance programs as their businesses grow to mitigate the risks of criminal prosecution. Only through persistent, sophisticated, and proactive diligence can today’s digital asset leaders operate successfully without facing the threat or reality of criminal liability.
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Seth Waxman is a Partner at Mitchell Sandler. He leads the White Collar Defense and Corporate Investigations Group. He represents financial institutions, financial service providers, mortgage lenders, health care companies, public officials and all other manner of businesses and individuals facing government investigations, criminal and civil actions, and regulatory enforcement. He is a nationally recognized former federal prosecutor with 30 years’ experience.
Bree Murphy is senior counsel at Mitchell Sandler. She has two decades of experience advocating for her clients in the boardroom and the courtroom as they navigate government scrutiny, internal investigations, civil litigation, and criminal prosecution. With a deep understanding of the impact an investigation may have on individuals and businesses, Bree defends and guides her clients with an eye towards minimizing stress and disruption.
Sean Hennessy is Counsel at Mitchell Sandler. He is a seasoned litigator and former federal enforcement attorney with extensive experience representing businesses and individuals in complex civil litigation, government investigations, and regulatory enforcement actions. He has served as a Trial Attorney in the Division of Enforcement at the Commodity Futures Trading Commission (CFTC), where he led high-stakes investigations and federal court prosecutions involving insider trading, market manipulation, financial fraud, and other misconduct. While at the CFTC, Sean served on the agency’s Digital Assets Task Force and was a key advisor to leadership on emerging legal and technological developments in crypto enforcement and regulation.
Chloé Dolsenhe is Senior Associate at Mitchell Sandler. She specializes in regulatory compliance, government enforcement, and internal investigations primarily for financial technology companies, depository institutions and third-party service providers. She brings her experience as a government enforcement attorney where she leveraged AI in investigations and led the Generative AI Working Group in the Enforcement Division of the Office of the Comptroller of the Currency. She advises clients seeking compliance guidance when integrating artificial intelligence and integrating digital assets into their consumer products.