The appeals court deemed Tornado Cash’s smart contracts to be beyond the scope of federal property laws. The ruling led to a massive TORN price surge. In Utah, a federal judge upheld the SEC’s lawsuit against Kristoffer Krohn and Green United LLC. The regulator alleges that Krohn ran a $18 million crypto mining scam. In Arkansas, a federal judge issued a temporary restraining order to prevent state officials from shutting down a crypto mining operation that is owned by a naturalized U.S. citizen due to potential discriminatory enforcement of state laws targeting Chinese nationals.
Tornado Cash Sanctions Nullified by U.S. Appeals Court
Tornado Cash users achieved a major legal victory after a United States appeals court ruled that the Treasury Department’s sanctions against the crypto mixer’s immutable smart contracts were unlawful. On Nov. 26, a Fifth Circuit Appeals Court’s three-judge panel reversed a previous lower court decision, granting Tornado Cash users a partial summary judgment.
The court found that the Office of Foreign Assets Control (OFAC) overstepped its authority under the International Emergency Economic Powers Act (IEEPA) by sanctioning smart contracts that cannot be owned or controlled. According to the judges, these contracts do not qualify as ”property” under federal law.
The court stated that while OFAC has the authority to sanction property, Tornado Cash’s immutable smart contracts—being autonomous and devoid of administrative control—do not meet the criteria for property under IEEPA.
This ruling was a turning point in the ongoing legal battle between Tornado Cash and the Treasury Department which started in August of 2022 when the U.S. Treasury sanctioned Tornado Cash after alleging it facilitated the laundering of more than $7 billion in crypto since 2019. Coinbase-supported plaintiffs, led by Joseph Van Loon, challenged the sanctions, and argued that the Treasury’s designation of Tornado Cash’s 44 smart contract addresses violated federal law.
In 2023, a Texas federal court sided with the Treasury and labeled Tornado Cash as a sanctionable entity. This ruling prompted an appeal, which culminated in the Nov. 26 decision which clarified that immutable smart contracts with no administrative keys fall outside OFAC’s regulatory scope. Legal experts, including Consensys lawyer Bill Hughes, believes that while this judgment removes the specific smart contracts from the sanctions list, it does not absolve Tornado Cash entirely from further scrutiny by the Treasury or OFAC.
Coinbase’s chief legal officer Paul Grewal pointed out some of the decision’s implications, and shared that U.S. individuals can now use Tornado Cash’s privacy-focused protocol without violating sanctions.
News of the ruling caused Tornado Cash’s native token, TORN, to surge by more than 860% to hit a two-year high. At press time, TORN was trading hands at $12.63.
TORN’s price action over the past 24 hours (Source: CoinMarketCap)
What is Tornado Cash?
Tornado Cash is a decentralized cryptocurrency mixer that is built on the Ethereum blockchain, and it is designed to enhance privacy and anonymity in digital transactions. It allows users to break the traceability of their funds by pooling deposits from multiple users and redistributing them to new addresses. This process is executed through immutable smart contracts to make sure that the origin and destination of funds remain unlinked.
The platform operates without any centralized control, and relies on transparent, open-source code to process transactions. While privacy advocates like Tornado Cash because it encourages financial anonymity and protecting user security, it has also faced some regulatory scrutiny. Even today, Tornado Cash is still a focal point in the debate over balancing financial privacy with regulatory compliance in the crypto ecosystem.
SEC Lawsuit Against Crypto Firm Allowed to Proceed
Meanwhile, a Utah federal judge rejected an appeal to dismiss a lawsuit that was filed by the U.S. Securities and Exchange Commission (SEC) against Kristoffer Krohn, a promoter of the allegedly fraudulent crypto mining firm Green United LLC. The SEC accuses the firm of orchestrating an $18 million investment scheme involving the sale of ”Green Boxes” and ”Green nodes,” which were marketed as mining hardware for a nonexistent Green Blockchain.
Judge Ann Marie McIff Allen denied Krohn’s request for an appeal on Nov. 26, and reaffirmed her earlier decision from Sept. 23 to allow the SEC’s case to proceed. In her ruling, Allen stated that Krohn did not demonstrate grounds for an appeal or differences in legal interpretation. She also rejected Krohn’s claim that the SEC did not adequately establish the existence of investment contracts under the Howey test, which is a key framework for defining securities. Krohn argued that the SEC confused elements of the test, but Allen stated that his arguments lacked legal precedent and support.
The SEC alleges that Green United misled investors between April of 2018 and December of 2022 by promising large returns through its development of a Green Blockchain and the GREEN token. According to the SEC, the Green Blockchain never even existed, and the GREEN token was created after the initial sale of mining hardware, distributed periodically to give the illusion of operational success.
The lawsuit also names Green United founder Wright Thurston, who separately wanted to dismiss the case. Despite Krohn’s attempts to stop the proceedings, the judge’s decision ensures that the SEC’s allegations will move forward.
Arkansas Judge Blocks Crypto Mining Shutdown
A federal judge in Little Rock, Arkansas, issued a temporary restraining order (TRO) preventing state officials from shutting down a crypto mining operation that is owned by a naturalized U.S. citizen of Chinese descent. On Nov. 25, Chief U.S. District Judge Kristine Baker granted the TRO in favor of Jones Eagle, a crypto mining firm. The order was issued after allegations of illegal discrimination under two Arkansas state laws—Act 636 of 2023 and Act 174 of 2024.
Act 636 prohibits property ownership in Arkansas by entities connected to the Chinese government, while Act 174 bans foreign entities from owning digital asset mining operations in the state. Arkansas officials argued that the firm, which is owned by Qimin “Jimmy” Chen, violated these laws. They also claimed that Chen was a Chinese national. However, Chen is a naturalized U.S. citizen that lives in New York. He argued that the state’s actions discriminated against him based on his national origin.
Chen’s attorney, Alex Jones, stated that the TRO will remain in effect for 14 days, during which time the court will hold a hearing to determine whether to extend the order or grant a preliminary injunction. Jones argued that the laws are unconstitutional and are a legislative overreach. The restraining order prevents further harm to Chen and his business as they prepare for a trial.
Chen owns a majority stake in the crypto mining firm through Eagle Asset Holding, and claimed that he previously provided documents to Arkansas’s attorney general demonstrating that the mining site was not located on agricultural land, which is required under state law. Despite this, his attempts to discuss his citizenship status with state authorities were rebuffed.
Attorney General Tim Griffin, who has been investigating various crypto mining operations in Arkansas, suggested that not all entities involved in these operations were fully cooperative.
This article was originally Posted on Coinpaper.com
