NEW YORK — Prosecutors told a federal judge in open court on Friday that they were considering criminally charging certain employees of crypto venture capital firm Dragonfly Capital, including general partner Tom Schmidt, for their 2020 investment into privacy tool Tornado Cash.

The discussion between prosecutor Nathan Rehn and District Judge Katherine Polk Failla of the Southern District of New York (SDNY) came amid a break in the ongoing trial of Tornado Cash developer Roman Storm, who has been charged with conspiracy to commit money laundering, conspiracy to operate an unlicensed money transmitting business and conspiracy to violate international sanctions for his work with the privacy tool — charges for which, if found guilty, he faces up to 45 years in prison.

During their case, the prosecution introduced a slew of messages between Storm and two Dragonfly Capital partners, Schmidt and managing partner Haseeb Qureshi. In the context of the government’s case, the messages seemed to serve several purposes: to establish proper venue in New York (because Schmidt is based in Manhattan), to show that Storm and his colleagues profited from Tornado Cash and to show that they made frequent changes to the front end, or user interface, of the product.

However, when Storm’s defense team raised the possibility of asking Schmidt to testify — likely to provide context for his and Storm’s messages and to explain the firm’s rationale for investing in Tornado Cash — prosecutors declined to grant Schmidt (as well as potentially another of the defense’s would-be witnesses) immunity from his testimony being used against him in a future prosecution, prompting Schmidt to plead the fifth and decline to testify in Storm’s defense.

“Are you looking at possibly prosecuting everyone at Dragonfly?” Failla asked Rehn on Friday.

“Not everyone, but Schmidt” and another individual, Rehn said, according to Inner City Press.

The government then asked the judge to seal that portion of the transcript of the open-court discussion, which she agreed to do.

Qureshi took to X on Friday to defend his firm’s investment in Tornado Cash, writing:

“We believe deeply in Americans’ right to privacy, and the lack of it remains one of crypto’s largest unsolved problems. We therefore stand by our investment. We did not operate or exercise any control over Tornado Cash, we had no contact with any malicious users, we always encouraged our portfolio companies to follow the law, and we maintain that Tornado Cash itself has a lawful right to exist,” Qureshi wrote. “Charging a venture firm for a portfolio company’s alleged misconduct would be unprecedented, especially under these circumstances.”

Qureshi added that Dragonfly has “fully cooperated” with the government’s investigation into Tornado Cash, which he said began in 2023.

“After all of this time — years later — bringing charges against Dragonfly would be outrageous, contrary to the facts, and would induce a chilling effect onto all investment into crypto and privacy-preserving technologies in America,” Qureshi said. “We don’t believe the DOJ would actually bring such absurd and groundless charges. But if they do, we intend to vigorously defend ourselves.”