Crypto Stablecoin Law Faces Pushback As New York Prosecutors Target Tether, Circle

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.

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.

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.

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.

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. 

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. 

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. 

By 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. 

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

Featured image from OpenArt, chart from TradingView.com