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New York Attorney General Letitia James has warned that the US stablecoin law known as the GENIUS Act fails to adequately protect consumers and leaves victims of crypto fraud with limited avenues to recover stolen funds.
In a letter sent last week to senior Democratic lawmakers, James and four New York district attorneys said the Guiding and Establishing National Innovation for U.S. Stablecoins Act, signed into law last year by President Donald Trump, grants stablecoins regulatory legitimacy without imposing sufficient safeguards.
“Since being signed into law, the GENIUS Act has provided stablecoins and stablecoin issuers the imprimatur of legitimacy, while still allowing issuers to avoid significant regulatory requirements,”
James and the prosecutors said.
The letter singled out Tether and Circle, arguing that both firms are able to earn interest on reserves linked to stolen funds while facing no clear obligation to return assets to victims.
Prosecutors said the law’s requirements for dollar backing and audits fall short given stablecoins’ role in illicit finance, citing estimates that 84% of illicit crypto transaction volume in 2025 involved stablecoins.
Tether said it voluntarily cooperates with US law enforcement despite not being US-domiciled, while Circle said it freezes funds only after receiving a judicial order, a process prosecutors argue is too slow to stop fast-moving criminals.
The warning comes as regulators begin implementing the GENIUS Act, with New York officials urging Congress to consider additional legislative tools to ensure stolen stablecoin funds can be frozen and returned more quickly.