New York prosecutors, Letitia James and Alvin Bragg, have written a letter to Congress detailing how the GENIUS Act helps stablecoin companies profit off stolen funds.
Tether and Circle reportedly earn billions in interest on stolen funds instead of turning over the assets to the authorities or returning them to the victims.
How does the GENIUS Act fail to protect cryptocurrency investors?
In a letter to Congressional leaders, CNN reports that New York Attorney General Letitia James and Manhattan District Attorney Alvin Bragg argued that the GENIUS law is a “gift” to crypto companies that are effectively “profiting from fraud.”
The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was signed into law by President Trump in July 2025. It was designed to bring stability to stablecoins and requires companies to back up their coins with safe assets like cash or Treasury bills.
However, prosecutors say the law is missing a critical rule that forces companies to give stolen money back to victims.
According to the letter, this “loophole” allows the two biggest stablecoin issuers, Tether (USDT) and Circle (USDC), to keep control of funds even after they have been flagged as stolen.
Notably, these companies hold billions of dollars in government bonds to back their coins, and as a result, they earn massive amounts of interest. Prosecutors estimate that in 2024 alone, both companies made roughly $1 billion in profit from these investments. Some of those profits come from the interest earned on money belonging to victims of hacks and “pig butchering” scams.
Letitia James and Alvin Bragg pointed out that the GENIUS Act lacks “restitution” language. In traditional banking, if a bank is told by a court that funds are stolen, there are clear paths to return that money, but the GENIUS Act only focuses on making sure companies don’t go bankrupt, and barely touches on how to handle criminal proceeds.
The prosecutors allege that when Circle freezes a wallet, it “hoards” the underlying cash instead of sending it to law enforcement or victims and continues to collect interest. As of November 2025, Circle reportedly held more than $114 million in frozen funds.
Tether, on the other hand, helps law enforcement on a “case-by-case” basis. The company recently made headlines for freezing $182 million across five wallets on the Tron blockchain on January 11, 2026, but it also argues that it has no “blanket legal obligation” to follow state-level orders, only federal ones.
This leaves many victims in New York with no way to get their money back, even if the police know exactly which digital wallet is holding it.
Is the crypto industry doing enough to stop international crime?
According to the 2026 Crypto Crime Report from Chainalysis, illicit addresses received a record $154 billion in 2025, a 162% increase from the previous year. The report also noted that stablecoins are now the “preferred rail” for criminals.
In February 2025, Russian entities launched a ruble-backed token called A7A5 to bypass international sanctions. In less than a year, that single token processed over $93 billion. Nation-states like North Korea are also using stablecoins to hide the $2 billion they stole in 2025, including a massive $1.5 billion hack of the Bybit exchange in early 2025.
In the case of local crime, the Brooklyn District Attorney recently indicted a 23-year-old for a $16 million scam where he used AI to impersonate Coinbase employees. These “AI-enabled” scams were found to be 4.5 times more profitable than traditional scams in 2025 because they are so convincing.
Prosecutors argue that the GENIUS Act provides an “imprimatur of legitimacy” to the industry without providing the tools to stop these high-tech criminals.
The White House Crypto Council is expected to meet with leaders from Coinbase, Ripple, and the American Bankers Association next week to discuss “stablecoin reward” and how to handle interest payments, which the GENIUS Act currently bans issuers from paying to customers.
The NY prosecutors addressed their letter to influential Senators like Chuck Schumer and Mark Warner. Warner’s office already responded, stating that protecting victims is “paramount” and that Congress is evaluating if more laws are needed to make sure stolen funds are returned quickly.
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Source: https://www.cryptopolitan.com/new-york-prosecutors-target-stablecoin-firms/
