Crypto Stablecoin Law Faces Pushback As New York Prosecutors Target Tether, Circle | Bitcoinist.com

Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure As negotiations continue in Washington over the crypto market structure legislation known as the CLARITY Act, New York’s top law enforcement officials are now turning their attention to a bill that has already become law

Led by New York Attorney General Letitia James, a group of senior prosecutors is raising concerns about the GENIUS Act, the first major US crypto law focused on regulating stablecoins.

Alleged Regulatory Gaps In Crypto Law

According to a report from CNN, James joined four district attorneys, including Manhattan District Attorney Alvin Bragg, in warning lawmakers that the GENIUS Act fails to adequately protect victims of financial crime

In a letter to Congress, the prosecutors argue that the law gives what they describe as an “imprimatur of legitimacy” to stablecoins, while allowing issuing companies to sidestep critical regulatory obligations needed to combat terrorism financing, drug trafficking, money laundering, and, in particular, cryptocurrency fraud.

Related Reading: Inside The White House’s Crucial Crypto Meeting With Banks: Main TakeawaysA central concern for the prosecutors is not what the GENIUS Act includes, but what it leaves out. They argue that the law does not require stablecoin issuers to return stolen funds to victims of fraud. This omission, they say, risks encouraging harmful behavior

In their view, the lack of a clear legal obligation could embolden stablecoin companies to retain stolen assets rather than cooperate fully with law enforcement efforts to make victims whole. The prosecutors warned that this gap may effectively provide legal cover for firms that choose to keep control of stolen funds.

Tether Rejects Allegations

The letter singles out the two largest stablecoin issuers, Tether (USDT) and Circle (USDC), claiming both have hindered efforts to seize and return illicit funds, while continuing to profit from activity that prosecutors say remains widespread in stablecoin markets

The prosecutors allege that the company has used this power inconsistently and primarily in coordination with federal law enforcement, rather than in response to state or local actions.

As a result, they argue, many victims have little chance of recovering stolen funds once assets are converted into USDT. The letter states that funds moved into USDT are often never frozen, seized, or returned, and that Tether currently decides on a case‑by‑case basis whether to assist in recovery efforts.

Tether responded to CNN by strongly rejecting the suggestion that it tolerates illicit activity. The company said it takes fraud, consumer harm, and misuse of USDT extremely seriously and maintains a zero‑tolerance policy toward criminal behavior

Circle Faces Sharper Scrutiny

The prosecutors’ criticism of Circle, the second‑largest stablecoin issuer, is even sharper. Circle is publicly traded and based in New York, and the letter acknowledges that the company presents itself as a partner in the fight against financial crime

However, the prosecutors argue that Circle’s policies are “significantly worse than those of Tether” when it comes to helping victims recover stolen funds.

They allege that even when Circle agrees to freeze assets linked to fraud, it typically retains control of those funds rather than returning them to victims or law enforcement

Related Reading: Ethereum Price Prediction: ETH’s Performance Signals $7,000 Breakout, Expert SaysBy holding the underlying reserves, the prosecutors say, Circle continues to earn interest, creating what they describe as a “crystal clear” financial incentive to delay or deny fund returns

Circle pushed back against these claims in a statement to CNN. Dante Disparte, the company’s chief strategy officer, said Circle has consistently prioritized financial integrity and the advancement of strong regulatory standards in the US and globally

He argued that the crypto law clearly requires stablecoin issuers to follow applicable rules to combat illicit activity while also strengthening consumer protections

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