New York prosecutors criticize Tether and Circle's profits, directly criticizing the GENIUS Act.
New York state prosecutors have strongly criticized the GENIUS Act, the stablecoin regulation law that enabled stablecoin issuers Tether and Circle to make huge profits off of fraud victims' funds.
New York Attorney General Letitia James and Manhattan District Attorney Alvin Bragg, along with four other district attorneys, recently jointly wrote that the law provides a "legal shield" that gives it the appearance of legality, and that Tether and Circle each made $1 billion in profits in 2024 based on reserves believed to be proceeds of crime.
"If there is no obligation to repay fraud victims, it is encouraging crime."
Prosecutors pointed to the GENIUS Act's core problem as its lack of provisions requiring victims to return funds frozen through fraud or hacking. This leaves stablecoin issuers open to "intentional" retention of these funds, potentially facilitating their evasion of responsibility and the acquisition of criminal proceeds.
According to recent statistics, Tether froze $3.3 billion (approximately KRW 4.7966 trillion) worth of USDT between 2023 and 2025, blacklisting 7,268 wallet addresses. More than 2,800 of these blacklists were executed in collaboration with US law enforcement. Circle, on the other hand, froze $109 million (approximately KRW 158.3 billion) in 372 addresses during the same period.
Prosecutors specifically questioned the issuer's failure to return some of the frozen funds, which were assets of victims of loss or fraud, and instead used them for its own operating profits. Tether, headquartered in El Salvador, maintains it is exempt from local regulations. However, it emphasizes that it has cooperated with over 900 law enforcement requests over the past three years.
Circle and Tether Respond Differently… Prosecutors: "Both Companies Are at Risk"
Circle's Chief Strategy Officer, Dante Disparte, countered that the GENIUS Act already provides adequate financial crime prevention standards and that Circle has always prioritized regulation. However, the New York Attorney General's Office disputed this claim. According to the letter, Circle has been even more uncooperative with victims' redress than Tether.
Legal scholar and professor at American University, Hilary J. Allen, pointed out that the GENIUS Act only stipulates reserve requirements, similar to banking regulations, but does not address how illicit assets contained in reserves should be handled or legal liability. She assessed that this leaves stablecoin issuers legally vulnerable to refusing to provide relief to victims.
President Trump's signing of the GENIUS Act sparks controversy in political circles.
The GENIUS Act, a bipartisan stablecoin regulation bill signed by President Trump in July 2025, is designed to take effect within 18 months of its enactment or 120 days of enacting relevant agency regulations. However, the prosecutors' letter is the strongest public criticism from law enforcement since President Trump signed it, making it particularly impactful.
Meanwhile, in the New York State Attorney General election scheduled for November, 36-year-old Republican candidate Khurram Dara, a former executive at Circle and Coinbase, is challenging incumbent Attorney General James. Dara maintains support for the GENIUS Act, arguing that James's "overregulation" has worsened New York's business environment.
"Is fraudulent funds legal if they're reserve funds?" Controversy over the lax legal structure.
The key issue lies in a structural loophole in the GENIUS Act. While existing banking systems are required to cooperate with law enforcement through civil forfeiture proceedings when holding funds obtained through theft or fraud, stablecoin issuers are now subject to a new framework that allows them to refuse state access requests under federal law.
Prosecutors have already requested the return of frozen assets in several cases, but Tether and Circle have refused. This is not simply a "regulatory dispute," but rather an "operational risk" related to the recovery of actual damages. This issue suggests the need for supplementation of the GENIUS Act and is expected to significantly impact the future direction of US stablecoin policy.
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TP AI Precautions
This article was summarized using a TokenPost.ai-based language model. Key points in the text may be omitted or inaccurate.
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