GENIUS Act Under Fire: New York Prosecutors Express Concerns About Stablecoin Fraud Loopholes
A group of five officials from New York have alleged that stablecoin companies Tether and Circle face perverse incentives that discourage cooperation with authorities, enabling them to benefit financially from criminal activities involving their digital currencies.
Multiple district attorneys from New York have issued warnings regarding the federal legislation governing stablecoins in the United States, known as the GENIUS Act, asserting that it contains insufficient provisions to combat fraudulent activities.
Based on a report published by CNN on Monday, a letter bearing the signatures of New York Attorney General Letitia James along with four district attorneys stated that the GENIUS Act would effectively "provide legal cover" for companies issuing stablecoins, potentially enabling their involvement in fraudulent schemes.
The correspondence specifically named Tether and Circle as issuers who have allegedly benefited financially from criminal activities within stablecoin markets, with particular allegations directed at Tether for selectively freezing suspicious USDt (USDT) transactions rather than implementing comprehensive measures.
"The reality for many victims, therefore, is that funds stolen in or converted to USDT will never be frozen, seized, or returned," said the letter, according to CNN. "They [Tether] currently decide on a case-by-case basis when they will assist law enforcement in recovering funds for victims, and nothing prevents them from stopping all reissuance entirely."
With respect to Circle, the correspondence indicated that while the stablecoin issuer "claims to be an ally in the fight against financial fraud," its actual policies were described as "significantly worse than those of Tether for victims of fraud."
In response, chief strategy officer Dante Disparte was quoted as saying that Circle "has always prioritized financial integrity and advancing US and global regulatory standards for stablecoins," and further stated:
"[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."
In its statement, Tether emphasized that the company "takes fraud, consumer harm, and the misuse of USDT extremely seriously and maintains a zero-tolerance policy toward illicit activity," while acknowledging that 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 maintains its primary headquarters in El Salvador.
The legislative framework known as the GENIUS Act received presidential approval from US President Donald Trump in July, creating a regulatory structure for payment stablecoins throughout the United States. The legislation mandates that implementation must occur either 18 months following its enactment or 120 days after federal agencies have approved regulations connected to the law.
NY AG could face crypto lawyer challenger in 2026
As of Monday, Letitia James has not issued any public declarations suggesting she would decline to seek reelection as New York Attorney General in the upcoming election cycle, though she may encounter opposition from a candidate whose positions align with the cryptocurrency sector's interests.
Khurram Dara, who previously served as a policy lawyer for Coinbase, announced his intention in November to pursue the Republican nomination in an effort to defeat James, alleging that the sitting attorney general has waged "lawfare" targeting the cryptocurrency industry within New York state. The filing deadline of April 6 applies to both prospective candidates.