New York AG Letitia James Warns Stablecoin Law Fails to Protect Fraud Victims

According to the letter, first reported on by CNN’s Allison Morrow, addressed to Senate Democratic leaders, James and prosecutors including Manhattan District Attorney Alvin Bragg argue that the GENIUS Act confers an “imprimatur of legitimacy” on stablecoins without imposing core safeguards needed to fight terrorism financing, drug trafficking, money laundering, and cryptocurrency fraud.

While the law establishes reserve requirements for issuers, the prosecutors say it omits any mandate to return stolen assets to victims, a gap they warn will embolden issuers to keep illicit proceeds under their control. That omission, the letter states, undermines law enforcement efforts to freeze, seize, and recover stolen funds and weakens consumer protections at a moment when stablecoins are increasingly central to the digital-asset ecosystem.

The group of prosecutors and AG Letitia James allege that dominant issuers Tether and Circle have already limited cooperation with law enforcement, despite having the technical ability to immediately freeze suspect funds.

FAQ ❓

• Why are New York prosecutors opposing the GENIUS Act? New York Attorney General Letitia James and local prosecutors say the bill legitimizes stablecoins without requiring stolen funds be returned to victims.
• What risks do prosecutors say the GENIUS Act creates? A letter reported by CNN says the law weakens tools to combat fraud, money laundering, terrorism financing, and drug trafficking.
• Which law enforcement officials signed the warning letter? The letter includes Manhattan District Attorney Alvin Bragg and four other district attorneys.
• Which stablecoin issuers are named in the criticism? Prosecutors allege Tether and Circle have limited cooperation with law enforcement despite having the ability to freeze funds.