New York’s top prosecutors are raising concerns about the crypto industry’s first major federal regulatory framework, arguing that the recently enacted GENIUS Act leaves victims of fraud without meaningful protection.
New York Attorney General Letitia James and several district attorneys, including Manhattan DA Alvin Bragg, say the law confers legitimacy on stablecoins while failing to require issuers to return stolen funds, CNN reported.
The prosecutors warn that this omission risks encouraging companies to retain proceeds linked to fraud rather than prioritizing restitution.
They argue that the law, as written, weakens efforts to combat money laundering, terrorism financing, and crypto-related scams.
What The GENIUS Act Does And What It Omits
The GENIUS Act, signed into law in July by President Donald Trump, establishes a national framework for stablecoins, including reserve requirements similar to those imposed on banks.
Issuers must back their tokens one-for-one with liquid assets such as U.S. dollars or short-term Treasuries.
However, prosecutors say the legislation does not include language compelling issuers to return frozen or seized assets to fraud victims.
Also Read: Strategy Now Owns 713,502 Bitcoin Worth Billions And How They're Funding It Will Shock Every Investor They argue that this gap effectively gives companies legal cover to hold onto stolen funds, even when those funds have been identified.
Focus On Tether And Circle
The letter highlights the market’s two largest stablecoin issuers, Tether (USDT) and Circle (USDC), noting that both have the technical ability to freeze suspicious transactions.
Prosecutors allege that such actions are applied inconsistently and that frozen assets are often not returned to victims, allowing issuers to continue earning interest on the underlying reserves.
Both companies dispute the claims, saying they cooperate with law enforcement and comply with applicable financial integrity rules.
Still, New York prosecutors argue that without explicit restitution requirements, the GENIUS Act leaves victims exposed while allowing stablecoin issuers to profit from assets tied to criminal activity.
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