New York Prosecutors Claim GENIUS Act Protects Fraud Profits: CNN

In a letter exclusively reported by CNN, New York Attorney General Letitia James and Manhattan District Attorney Alvin Bragg allege that the law, signed by President Trump in July, allows issuers like Tether and Circle to "thwart" law enforcement efforts to return stolen funds to victims.

Interest on illicit gains

The core of the prosecutors' argument is a perverse financial incentive built into the current regulatory framework. 

While the GENIUS Act requires stablecoin issuers to back their coins one-for-one with high-quality liquid assets, it lacks any mandate for those firms to return frozen, stolen funds to their rightful owners. Prosecutors claim that as of November 2025, Circle alone held over $114mn in frozen funds. By refusing to return this capital to victims, the issuers continue to collect interest on the underlying Treasuries, effectively turning a "freeze" into a profit centre.

James and Bragg estimate that in 2024, Circle and Tether each generated approximately $1bn in profits from investing their reserve funds, a portion of which includes assets linked to "terrorism, drug trafficking and money laundering". This adds a dark layer to our previous reporting on how stablecoins are creating an offshore dollar network with growing systemic risk. 

If the industry’s "imprimatur of legitimacy" is being used to bankroll the issuers via criminal proceeds, the political consensus in Washington may fracture much faster than anticipated.

Throttling law enforcement

The letter, addressed to Senators Chuck Schumer and Kirsten Gillibrand, marks the most significant pushback against the GENIUS Act since its passage. 

Prosecutors argue that while Tether assists law enforcement on a "case-by-case" basis, Circle has "actively thwarted" efforts to recover funds for victims. This stands in stark contrast to the narrative of transparency and cooperation usually promoted by firms like Circle, which has spent millions positioning itself as the compliant, US-regulated alternative to offshore rivals.

This revelation complicates the broader "Trump crypto gold rush" narrative. While the industry has been trying to shed its association with scams, Chainalysis data suggests that illicit activity on the blockchain continues to grow by an average of 25% a year. If the GENIUS Act is indeed "hamstringing" the ability of local DAs to freeze and seize stolen proceeds, it validates previous warnings when the FDIC moved on stablecoins over fears of systemic instability. 

It appears that for some members of the New York legal establishment, the law isn't an infrastructure breakthrough; it is a shield for corporate indifference to fraud.