Several New York prosecutors say the federal stablecoin law known as the GENIUS Act leaves gaps that could enable fraud and protect bad actors. In a letter highlighted by CNN, New York Attorney General Letitia James and four district attorneys argued the law would “provide legal cover” for stablecoin issuers to engage in or facilitate illicit activity.
The letter targets issuers Tether and Circle, claiming both have benefited from wrongdoing in stablecoin markets. It accuses Tether of only freezing some suspicious USDt (USDT) transactions and warns, “The reality for many victims, therefore, is that funds stolen in or converted to USDT will never be frozen, seized, or returned.” The letter also says Tether currently helps law enforcement on a case-by-case basis and could stop reissuing tokens altogether.
Regarding Circle, the prosecutors say the issuer professes to be an ally against financial fraud but argues its policies are “significantly worse than those of Tether for victims of fraud.”
Circle’s chief strategy officer, Dante Disparte, responded that the company has prioritized financial integrity and supported U.S. and global regulatory standards for stablecoins. He said the GENIUS Act clarifies that stablecoin issuers must follow rules to combat illicit activity while strengthening consumer protections, and that Circle will continue to adhere to applicable standards as a U.S.-regulated financial institution.
Tether said it takes fraud and misuse of USDT “extremely seriously” and maintains a zero-tolerance stance toward illicit activity. The company noted, however, that it does not have a blanket legal obligation to comply with state-level civil or criminal processes in the same way a U.S.-regulated financial institution would. Tether is headquartered in El Salvador.
The GENIUS Act, signed into law by President Donald Trump in July, establishes 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 said she will not seek reelection this year. A potential 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 and accused James of using “lawfare” against the crypto sector. Candidates have until April 6 to file.
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