NY Prosecutors Raise Fraud Concerns Over GENIUS Act Enforcement Rules

The New York prosecutors have issued a warning on Monday regarding the federal stablecoin law referred to as the GENIUS Act. Critics have pointed out that this law fails to provide robust safeguards against fraud. 

According to a CNN report, the framework of the law may offer issuers legal protection while victims are unable to recover stolen or converted stablecoins. Attorney General Letitia James and four New York district attorneys have issued this warning in a letter. 

This letter has sparked new concerns regarding enforcement issues. The law may undermine oversight in the United States’ stablecoin markets.

In the letter, the authorities made reference to Circle and Tether. These two stablecoin issuers have benefited from criminal activities associated with transactions made from their stablecoins. 

The authorities have noted that Tether only freezes a small portion of USDt transactions upon receiving information about criminal activities.

GENIUS Act Criticized Over Victim Recovery Gaps

According to the letter, the victims never get their stolen funds back. The prosecutors explained that Tether chooses on a case-by-case basis when it will cooperate with law enforcement. They explained that nothing in the current GENIUS Act requires stablecoin issuers to support every request or freeze every asset.

The letter also criticized Circle. It stated that even though the issuer claims to be a partner in preventing financial fraud, its victim support standards are lower than Tether’s based on freezing and cooperation levels. 

Circle’s Chief Strategy Officer, Dante Disparte, responded to this criticism. He said that Circle has always believed in financial integrity and has maintained strict internal protocols. 

Also Read: UK Treats Crypto Fraud As National Security Threat, Seizes $6 Billion in Assets

Disparte said that the GENIUS Act calls upon companies to have high standards of protection against illicit activities and enhance consumer protection in the US markets. 

Circle is complying with US regulatory oversight, as it is a licensed financial institution. He said that Circle would be able to continue conducting business at these standards and be transparent about their requirements.

Tether Disputes Prosecutors’ Claims on Fraud Oversight

Tether also disputed the claims in the prosecutors’ letter. It said it enforces a zero-tolerance policy toward fraud and harmful activity. The issuer said it responds to legal requests as required because it is not a U.S.-regulated financial institution.

Tether added that its headquarters in El Salvador determines how it handles legal processes. It did not address the prosecutors’ concerns about inconsistent freezing or selective cooperation tied to USDt recoveries.

The GENIUS Act became law in July after President Donald Trump signed the bill. It creates a national system for payment stablecoins. Agencies must implement the framework within 18 months or within 120 days of issuing supporting regulations.

In November, Coinbase policy lawyer Khurram Dara announced plans to run as a Republican to challenge Letitia James. He accused the attorney general of engaging in lawfare against the state’s crypto industry. Both candidates have until April 6 to submit their filings.

Also Read: Coinbase CEO Warns Reopening GENIUS Act is a ‘Red Line’ for Crypto in 2025