New York’s top prosecutors are raising alarms over the GENIUS Act, claiming it provides legal cover for stablecoin issuers like Tether (USDT) and Circle (USDC) while failing to protect fraud victims. The law, designed to regulate stablecoins, requires issuers to hold reserves backing their coins but lacks provisions compelling the return of stolen funds.
Attorney General Letitia James and Manhattan DA Alvin Bragg argue the law allows companies to profit from illicit activity. Prosecutors say Tether freezes suspicious transactions only ad hoc, and Circle sometimes hoards frozen funds, collecting interest instead of returning them to victims. They estimate that both companies made roughly $1 billion in 2024 from investing reserves, including stolen or frozen coins.
Critics argue that, unlike traditional finance, the GENIUS Act provides insufficient consumer protections. Stablecoins are widely used for transactions and as a bridge to traditional finance, but prosecutors note they now account for 63% of illicit crypto transactions. Experts warn that without legal obligations to return stolen assets, stablecoin issuers may continue to operate with minimal accountability.
While the crypto industry views the GENIUS Act as a step toward regulatory clarity, law enforcement officials call it a “paradigm of missing protections” that emboldens fraud and threatens victims’ recovery.
