New York Prosecutors Warn GENIUS Act Weakens Stablecoin Oversight
New York Attorney General Letitia James, joined by four New York district attorneys including Manhattan District Attorney Alvin Bragg, has issued a sharp critique of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), a federal law signed by President Donald Trump in July 2025.
In a formal letter addressed to key Democratic lawmakers, the prosecutors argue that the legislation prioritizes industry legitimacy over consumer protection and creates systemic gaps in law enforcement’s ability to combat financial crime involving stablecoins.
“Imprimatur of Legitimacy” Without Safeguards
Attorney General James warned that the GENIUS Act grants stablecoin issuers what she described as an “imprimatur of legitimacy”, while allowing them to sidestep critical regulatory obligations related to money laundering, terrorism financing, and crypto fraud.
According to the letter, the Act confers federal recognition without imposing sufficient safeguards to ensure that issuers cooperate fully with enforcement agencies or protect consumers from abuse.
Allegations of Profiting From Stolen Funds
A central concern raised by the prosecutors is that stablecoin issuers may be profiting from illicit activity. The letter specifically references Tether and Circle, alleging that both companies earned approximately $1 billion each in 2024 by investing reserve assets, including funds that were stolen or frozen.
The prosecutors argue that the GENIUS Act does not prevent issuers from retaining interest earned on such funds, creating incentives misaligned with consumer protection.
No Requirement to Return Stolen Assets
Another major criticism is the absence of mandatory restitution provisions. James stated that the law lacks explicit language requiring stablecoin issuers to return stolen funds to victims.
She warned that this omission “will embolden stablecoin issuers… to affirmatively decide to keep stolen funds,” leaving victims without effective remedies even when wrongdoing is established.
Claims of Limited Cooperation With Law Enforcement
The letter also alleges inconsistent cooperation by stablecoin issuers with law enforcement agencies. Prosecutors claim that Circle has “actively thwarted” efforts to recover stolen assets, while Tether is said to assist only on an ad-hoc basis when working with federal authorities.
According to the letter, this selective cooperation has resulted in many victims being unable to recover stolen funds, particularly at the state level.
Proposed Legislative Fixes
To address what she described as “dangerous weaknesses” in the GENIUS Act, Attorney General James urged Congress to adopt several changes:
- Regulate stablecoin issuers as banks, subjecting them to comparable supervision and capital requirements
- Mandate digital identity credentials for all transactions to reduce anonymity used in criminal activity
- Introduce FDIC-style insurance, guaranteeing redemption on demand and protecting customer deposits
- Expand subpoena compliance, requiring issuers to respond to state and federal administrative requests, not only court orders, to freeze assets immediately
Tether Responds
In response to the criticism, Tether stated that it voluntarily cooperates with law enforcement, but emphasized that it is not domiciled in the United States and therefore has no “blanket legal obligation” to comply with state-level enforcement processes.
Outlook
The letter from New York’s top prosecutors highlights growing tension between federal stablecoin policy and state-level enforcement priorities. As Congress evaluates potential amendments to the GENIUS Act, the debate is likely to center on whether stablecoin regulation should more closely resemble traditional banking oversight or continue under a lighter federal framework.
For now, the dispute underscores unresolved questions about consumer protection, enforcement authority, and accountability within the stablecoin ecosystem.
The post New York Prosecutors Warn GENIUS Act Weakens Stablecoin Oversight appeared first on ETHNews.
You May Also Like
XRP Price Completes Q1 In The Red Again, But Prior Performance Says A Surge Is Coming
Lovable AI’s Astonishing Rise: Anton Osika Reveals Startup Secrets at Bitcoin World Disrupt 2025
