New York Attorney General Letitia James slams stablecoin law GENIUS citing consumer protection concerns

New York Attorney General Letitia James and other top prosecutors in the state are raising concerns over a recently enacted stablecoin law, arguing it doesn’t include provisions requiring issuers like Circle and Tether to return stolen funds. 

In a letter sent last week to key Democratic lawmakers,  James and four New York district attorneys said that the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law last year by President Donald Trump, leaves victims with little recourse to recover their losses. New York has been a leader in stablecoin and crypto regulation at the state level.

CNN earlier reported the news of the letter. 

“Since being signed into law, the Genius Act has provided stablecoins and stablecoin issuers the imprimatur of legitimacy, while still allowing issuers to avoid significant regulatory requirements that are needed to combat financing terrorism, drug trafficking, money laundering, and especially cryptocurrency fraud,” James and prosecutors said in the letter. 

The stablecoin law is now entering its implementation phase, as agencies work to draft rules. GENIUS requires stablecoins to be fully backed by U.S. dollars or similarly liquid assets and mandates annual audits for issuers with a market capitalization of more than $50 billion. It also establishes guidelines for foreign issuance, among other requirements. 

New York prosecutors said that those measures fall short, citing stablecoins’ role in illicit finance. Stablecoins have often been used by bad actors who prefer them for their use in cross-border transfers and lower volatility. Chainalysis estimates 84% of all illicit crypto transaction volume in 2025 involved stablecoins, according to a recent report. 

Circle and Tether

James’ letter singles out Tether and Circle, the two largest stablecoins by market capitalization, in part for being able to generate interest from stolen customer funds. Both firms hold their reserves in cash or cash equivalents, like yield-bearing Treasuries. Prosecutors say Tether has frozen stolen funds “in some cases,” while Circle is less cooperative with authorities. 

“Moreover, although Tether may freeze, burn, and reissue USDT at the request of law enforcement in some limited circumstances, they acknowledge no legal obligation to do so,” the prosecutors said in the letter.

In a statement to The Block, Tether said it takes fraud, abuse of USDT, and consumer harm seriously. 

“Tether is not a U.S. domiciled issuer, and USDT does not operate under U.S. jurisdiction,” Tether said. “As such, Tether 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. That said, Tether voluntarily works closely with U.S. law enforcement at the federal, state, and local levels and routinely assists investigations aimed at protecting victims and preventing further harm.”

As for Circle, prosecutors accuse the stablecoin issuer of being worse than Tether for fraud victims. 

“Unlike Tether, however, Circle refuses to temporarily freeze funds at the request of law enforcement, and will only do so after they have received a signed judicial order or warrant,” they said in the letter. “Given the speed at which criminals and criminal networks operate, by the time it takes to obtain an order or warrant to freeze a given USDC address, the funds at issue have often already been moved to a different address, or been converted to a different virtual currency.” 

Dante Disparte, Circle’s chief strategy officer and head of global policy and operations, said the stablecoin issuer prioritizes moving forward with global and U.S. regulations for stablecoins.

“Even in the rulemaking phase of this novel law, 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,” Disparte said in a statement sent to The Block. “We have followed prevailing rules as a U.S. regulated financial institution, and we will continue to advance these standards once the GENIUS Act is in full effect.”

 The letter was sent to Democratic Sens. Chuck Schumer, Kirsten Gillibrand, and Mark Warner. Gillibrand and Schumer did not respond to a request for comment. A spokeswoman for Warner told The Block that they received the letter and said that stablecoin issuers “have a responsibility to comply with lawful court orders under the GENIUS Act and to cooperate fully with law enforcement to help victims recover stolen funds.”

“While technical or operational hurdles can at times delay the freezing or recovery of illicit assets, those challenges must not be an excuse for inaction,” the spokeswoman said. “Protecting victims is paramount, and Congress is continuing to evaluate whether additional legislative tools are needed to ensure issuers and law enforcement can act quickly to stop criminal activity and return stolen funds to their rightful owners.”

The Block also reached out to Republican Rep. French Hill and Sen. Tim Scott, both of whom were instrumental in passing GENUIS, but did not hear back. 

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