New York Attorney General Letitia James and four district attorneys, including Manhattan’s Alvin Bragg, signed a letter Monday accusing the GENIUS Act of providing “legal cover” for stablecoin issuers to profit from financial crimes while leaving fraud victims without recourse. The prosecutors say the law has provided the “imprimatur of legitimacy” for stablecoins while allowing issuers to “avoid significant regulatory requirements that are needed to combat financing terrorism, drug trafficking, money laundering, and especially cryptocurrency fraud.” James and Bragg take issue with what the GENIUS Act lacks: language that would compel companies to return stolen funds to victims of fraud. The absence, they write, “will embolden stablecoin issuers, and even provide legal cover, when they affirmatively decide to keep stolen funds and proceeds under their control rather than returning them to victims.” The Numbers The prosecutors estimate that in 2024, Circle and Tether each made $1 billion in profits from investing their reserve funds, including reserve funds backing stolen and frozen stablecoins. As of November, Circle had more 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 were taken in coordination with U.S. law enforcement. Circle, by comparison, froze $109 million across 372 addresses. TETHER FROZE $182M IN USDT Tether froze $182M across 5 Tron wallets holding $12M to $50M each with no disclosed reason. Since 2023, Tether has frozen $3.3B and blacklisted 7,268 wallets, according to AMLBot. pic.twitter.com/E0y2a7BejX — Coin Bureau (@coinbureau) January 12, 2026 Tether’s Defense Tether stated it “takes fraud, consumer harm, and the misuse of USDT extremely seriously and maintains a zero-tolerance policy toward illicit activity,” but noted that it does not have “a blanket legal obligation to comply with state-level civil or criminal processes in the way a U.S.-regulated financial institution would.” The stablecoin issuer’s headquarters is in El Salvador. That posture contradicts the company’s own public record. Tether has worked closely with law enforcement to block 2,090 wallets, including 960 in coordination with U.S. agencies. Over three years, Tether has voluntarily assisted with freezing illicit USDT in over 900 law enforcement requests, about 460 of which came from U.S. agencies. Circle Pushes Back Circle’s Chief Strategy Officer Dante Disparte said the company “has always prioritized financial integrity and advancing U.S. and global regulatory standards for stablecoins.” He added that the GENIUS Act “makes clear that stablecoin issuers must abide by applicable financial integrity rules for combating illicit activity.” The prosecutors disagree. Their letter claims Circle “has chosen to actively thwart law enforcement and to profit from victims’ losses.” Circle’s policies, they wrote, are “significantly worse than those of Tether for victims of fraud.” The Political Backdrop The GENIUS Act is a broad bipartisan effort, signed into law by President Trump in July, to create a regulatory framework for stablecoins. The bill requires implementation 18 months after enactment or 120 days after U.S. agencies approve regulations related to the law. This letter marks one of the most forceful criticisms of the GENIUS Act from law enforcement officials since President Donald Trump signed it in July. @POTUS signs the GENIUS Act into law — a historic piece of legislation that will pave the way for the United States to lead the global digital currency revolution. pic.twitter.com/bYT0bAEjcJ — Rapid Response 47 (@RapidResponse47) July 18, 2025 The timing is important as a 36-year-old crypto lawyer named Khurram Dara has officially announced his Republican candidacy for New York Attorney General, challenging James directly. Dara, a New York State native, previously worked at Coinbase and Bain Capital Crypto. He claims James has engaged in “lawfare and regulatory overreach” that is “hurting New York’s business climate.” Both potential candidates have an April 6 deadline to file. The Structural Gap The core dispute centers on the GENIUS Act’s silence on restitution. The law creates reserve requirements for coin issuers similar to rules that ensure banks hold enough assets to cover their liabilities. It says nothing about what happens when those reserves contain proceeds from fraud. “All of that mundane stuff that has sort of been sorted out for traditional finance through decades of trial and error—it’s not there in the GENIUS Act,” Hilary J. Allen, a law professor at American University who specializes in banking and cryptocurrency, told CNN . For institutional desks watching this fight: the concern is operational, not ideological. When a traditional bank holds stolen funds, civil forfeiture law compels cooperation. When a stablecoin issuer does, the federal framework now explicitly permits them to decline state-level requests. The letter names specific cases where prosecutors sought frozen assets and were refused. The post NY Prosecutors Slam GENIUS Act, Claim Tether and Circle Profit From Fraud appeared first on Cryptonews .
