Several New York prosecutors have warned that the federal stablecoin law known as the GENIUS Act does not adequately prevent fraud and could shield bad actors. A CNN report says New York Attorney General Letitia James and four district attorneys signed a letter arguing the law will “provide legal cover” for stablecoin issuers to engage in or facilitate fraud.
The letter singled out issuers Tether and Circle, asserting both have profited from illicit activity in stablecoin markets. It accuses Tether of only freezing some suspicious USDt (USDT) transactions and says, “The reality for many victims, therefore, is that funds stolen in or converted to USDT will never be frozen, seized, or returned.” The letter adds that Tether currently decides case-by-case whether to assist law enforcement and that nothing prevents it from stopping reissuance entirely.
On Circle, the letter contends the issuer “claims to be an ally in the fight against financial fraud,” but maintains its policies are “significantly worse than those of Tether for victims of fraud.”
Circle chief strategy officer Dante Disparte responded that the company “has always prioritized financial integrity and advancing US and global regulatory standards for stablecoins,” and said the GENIUS Act “makes clear that stablecoin issuers must abide by applicable financial integrity rules for combating illicit activity, while enhancing clear consumer protection norms. We have followed prevailing rules as a US regulated financial institution, and we will continue to advance these standards.”
Tether said it “takes fraud, consumer harm, and the misuse of USDT extremely seriously and maintains a zero-tolerance policy toward illicit activity,” while noting it does not have “a blanket legal obligation to comply with state-level civil or criminal processes in the way a US-regulated financial institution would.” The company is headquartered in El Salvador.
The GENIUS Act, signed into law by President Donald Trump in July, creates a framework for payment stablecoins in the United States. The law requires its provisions be implemented 18 months after enactment or within 120 days after regulators finalize related rules.
Letitia James has not publicly indicated she will not seek reelection this year. She could face a challenger aligned with crypto industry interests: former Coinbase policy lawyer Khurram Dara announced in November he plans to run as a Republican for New York attorney general, accusing James of engaging in “lawfare” against the crypto sector. Potential candidates have until April 6 to file.
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