NY Prosecutors Blast GENIUS Act, Accusing Tether and Circle of Profiting from Fraud
New York prosecutors are taking aim at the proposed GENIUS Act, launching a scathing critique that puts stablecoin giants Tether and Circle directly in the crosshairs. The allegation? That their business models benefit from systemic fraud.
The Prosecution's Case
The core of the argument cuts straight to the heart of the stablecoin ecosystem. Prosecutors claim the current regulatory gray area—which the GENIUS Act seeks to formalize—creates a perverse incentive. They argue that opaque reserve practices and a lack of real-time, audited transparency allow bad actors to operate with impunity, while the issuers collecting fees on billions in transaction volume look the other way. It's a classic case of profits privatized, risks socialized.
A System Under Fire
This isn't just about policing individual bad transactions. The critique bypasses simple fraud claims to attack the foundational economics. The implication is that the sheer scale of Tether (USDT) and Circle's (USDC) operations generates revenue streams inherently linked to market manipulation and illicit flows. For prosecutors, the act doesn't solve the problem—it codifies a lucrative loophole.
Finance's Oldest Playbook
At its close, the prosecutors' move feels less like a novel crackdown and more like Wall Street's timeless tradition: aggressively monetizing the gap between innovation and regulation, then lobbying to keep that gap wide open. The GENIUS Act fight isn't just about crypto's future; it's a stark reminder that in high finance, the house always wins—even when the game is supposedly being rewritten.
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
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
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.
