The top prosecutors in New York express concerns about the first major federal regulatory framework for the crypto industry, arguing that the recent GENIUS law leaves fraud victims without meaningful protection.
The Attorney General of New York, Letitia James, and several district attorneys, including Manhattan District Attorney Alvin Bragg, assert that the law grants legitimacy to stablecoins while not requiring issuers to return stolen funds, a reported CNN.
Prosecutors warn that this omission risks encouraging companies to retain products related to fraud rather than prioritizing compensation for victims.
They argue that the law, as it stands, undermines efforts to combat money laundering, terrorist financing, and cryptocurrency-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 on a one-to-one basis with liquid assets such as U.S. dollars or short-term Treasury bills.
However, prosecutors indicate that the text does not contain provisions requiring issuers to return frozen or confiscated 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 believe that this gap effectively provides legal protection to companies to retain stolen funds, even when those funds have been identified.
Focus on Tether and Circle
The letter highlights the two largest stablecoin issuers in the market, Tether (USDT) and Circle (USDC), emphasizing that both have the technical capability to freeze suspicious transactions.
Prosecutors allege that these measures are applied unevenly and that frozen assets are often not returned to victims, allowing issuers to continue earning interest on the underlying reserves.
Both companies contest these claims, stating that they cooperate with law enforcement and comply with applicable financial integrity rules.
Nevertheless, New York prosecutors argue that in the absence of explicit restitution obligations, the GENIUS Act leaves victims exposed while allowing stablecoin issuers to profit from assets tied to criminal activity.
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