New York prosecutors have warned that the GENIUS Act, a new law regulating stablecoins, fails to protect fraud victims and allows issuers to profit from stolen funds. In a letter to key senators, Attorney General Letitia James and District Attorney Alvin Bragg argue the legislation provides legal cover to companies like Tether and Circle. They claim these firms resist returning seized assets, prioritizing their own financial gains.
The GENIUS Act, signed into law by President Donald Trump in July, establishes a regulatory framework for stablecoins—cryptocurrencies pegged to stable assets like the US dollar. It requires issuers to back their coins one-for-one with liquid reserves, such as dollars or short-term Treasuries, aiming to bring order to the booming digital asset market. Stablecoin transaction volumes surged 72% last year to $33 trillion, outpacing even bitcoin's trading, according to Artemis Analytics data cited by Bloomberg News.
However, in an exclusive letter seen by CNN, New York Attorney General Letitia James and four district attorneys, including Manhattan's Alvin Bragg, decry the law's shortcomings. They argue it lacks mandates for companies to return stolen funds to victims, instead offering "imprimatur of legitimacy" while enabling firms to evade rules against terrorism financing, drug trafficking, money laundering, and fraud.
The prosecutors spotlight Tether, the largest stablecoin issuer by volume and based in El Salvador, and Circle, the second-largest and a New York-headquartered public company. Tether can freeze its USDT transactions but does so only ad hoc and mainly with federal law enforcement, the letter states. "The reality for many victims, therefore, is that funds stolen in or converted to USDT will never be frozen, seized, or returned," it warns.
Tether responded that it maintains a "zero-tolerance policy toward illicit activity" and voluntarily assists investigations at all levels. For Circle, the criticism is sharper: even when freezing funds, it allegedly hoards them to earn interest rather than returning them. Prosecutors estimate Circle held over $114 million in frozen funds as of November and that both firms profited $1 billion each in 2024 from reserve investments, including those backing stolen assets.
Circle's chief strategy officer, Dante Disparte, countered that the company prioritizes financial integrity and complies with US rules, noting the GENIUS Act enhances consumer protections. The letter, addressed to Senators Chuck Schumer, Kirsten Gillibrand, and Mark Warner, highlights how stablecoins now represent 63% of illicit crypto transactions, per Chainalysis, with blockchain crime growing 25% annually since 2020.
A spokesperson for Senator Warner emphasized that issuers must cooperate with law enforcement under the act and that Congress is assessing further tools to aid victims. Critics like American University law professor Hilary J. Allen argue the law overlooks basic consumer safeguards long established in traditional finance.
