NY Prosecutors Slam GENIUS Act, Claim Tether and Circle Profit From Fraud
New York Attorney General Letitia James and 4 district attorneys, together with Manhattan’s Alvin Bragg, signed a letter Monday accusing the GENIUS Act of offering “authorized cowl” for stablecoin issuers to revenue from monetary crimes whereas leaving fraud victims with out recourse.
The prosecutors say the legislation has supplied the “imprimatur of legitimacy” for stablecoins whereas permitting issuers to “keep away from vital regulatory necessities which might be wanted to fight financing terrorism, drug trafficking, cash laundering, and particularly cryptocurrency fraud.”
James and Bragg take situation with what the GENIUS Act lacks: language that might compel firms to return stolen funds to victims of fraud. The absence, they write, “will embolden stablecoin issuers, and even present authorized cowl, after they affirmatively determine to maintain stolen funds and proceeds below their management somewhat than returning them to victims.”
The Numbers
The prosecutors estimate that in 2024, Circle and Tether every made $1 billion in income from investing their reserve funds, together with reserve funds backing stolen and frozen stablecoins. As of November, Circle had greater than $114 million in frozen funds.
Between 2023 and 2025, Tether froze $3.3 billion in USDT, blacklisting 7,268 addresses. Over 2,800 actions had been taken in coordination with U.S. legislation enforcement. Circle, by comparability, froze $109 million across 372 addresses.
Tether’s Defense
Tether said it “takes fraud, client hurt, and the misuse of USDT extraordinarily significantly and maintains a zero-tolerance coverage towards illicit exercise,” however famous that it doesn’t have “a blanket authorized obligation to adjust to state-level civil or felony processes in the way in which a U.S.-regulated monetary establishment would.” The stablecoin issuer’s headquarters is in El Salvador.
That posture contradicts the corporate’s personal public document. Tether has labored carefully with legislation enforcement to dam 2,090 wallets, together with 960 in coordination with U.S. businesses. Over three years, Tether has voluntarily assisted with freezing illicit USDT in over 900 legislation enforcement requests, about 460 of which got here from U.S. businesses.
Circle Pushes Back
Circle’s Chief Strategy Officer Dante Disparte mentioned the corporate “has at all times prioritized monetary integrity and advancing U.S. and international regulatory requirements for stablecoins.”
He added that the GENIUS Act “makes clear that stablecoin issuers should abide by relevant monetary integrity guidelines for combating illicit exercise.”
The prosecutors disagree. Their letter claims Circle “has chosen to actively thwart legislation enforcement and to revenue from victims’ losses.” Circle’s insurance policies, they wrote, are “considerably worse than these of Tether for victims of fraud.”
The Political Backdrop
The GENIUS Act is a broad bipartisan effort, signed into legislation by President Trump in July, to create a regulatory framework for stablecoins. The invoice requires implementation 18 months after enactment or 120 days after U.S. businesses approve rules associated to the legislation.
This letter marks one of the forceful criticisms of the GENIUS Act from legislation enforcement officers since President Donald Trump signed it in July.
@POTUS indicators the GENIUS Act into legislation — a historic piece of laws that can pave the way in which for the United States to guide the worldwide digital foreign money revolution. pic.twitter.com/bYT0bAEjcJ
— Rapid Response 47 (@RapidResponse47) July 18, 2025
The timing is essential as a 36-year-old crypto lawyer named Khurram Dara has formally introduced his Republican candidacy for New York Attorney General, difficult James immediately. Dara, a New York State native, beforehand labored at Coinbase and Bain Capital Crypto. He claims James has engaged in “lawfare and regulatory overreach” that’s “hurting New York’s enterprise local weather.”
Both potential candidates have an April 6 deadline to file.
The Structural Gap
The core dispute facilities on the GENIUS Act’s silence on restitution. The legislation creates reserve necessities for coin issuers just like guidelines that guarantee banks maintain sufficient belongings to cowl their liabilities. It says nothing about what occurs when these reserves comprise proceeds from fraud.
“All of that mundane stuff that has type of been sorted out for conventional finance via many years of trial and error—it’s not there within the GENIUS Act,” Hilary J. Allen, a legislation professor at American University who focuses on banking and cryptocurrency, told CNN.
For institutional desks watching this battle: the priority is operational, not ideological. When a standard financial institution holds stolen funds, civil forfeiture legislation compels cooperation. When a stablecoin issuer does, the federal framework now explicitly allows them to decline state-level requests. The letter names particular circumstances the place prosecutors sought frozen belongings and had been refused.
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