NY Prosecutors Warn About GENIUS Act on Fraud: Report

New York district attorneys and the state’s top prosecutor have escalated their critique of the federal stablecoin framework embodied by the GENIUS Act, arguing that it could unintentionally shield issuers from accountability and leave victims exposed to fraud. In a letter highlighted by CNN, New York Attorney General Letitia James and four district attorneys warned that the act would “provide legal cover” for stablecoin issuers to participate in illicit activity, potentially undermining consumer protections as digital payments become more entrenched in daily commerce. The missive zeroed in on two prominent issuers, Tether and Circle, arguing that their practices have not consistently safeguarded users or facilitated prompt recovery of stolen funds. The letter’s insistence reflects a wider tension between federal policy aims and state-level enforcement that has intensified as on-chain money moves and stablecoin trading activity expand.

Key takeaways

• The NY AGs contend the GENIUS Act could create loopholes that enable fraud in the stablecoin sector, arguing it falls short on robust consumer protections and enforcement clarity.
• Tether (USDT) and Circle are singled out in the letter, with allegations that USDT policies and related practices may hinder victims’ ability to recover stolen funds.
• The letter quotes a stark warning: funds converted to USDT may be “never frozen, seized, or returned” if issuers do not cooperate consistently, illustrating concerns about cross-jurisdictional enforcement.
• Officials cite a contrast between issuer positions—Circle’s emphasis on regulatory compliance versus Tether’s case-by-case approach—as indicative of uneven consumer safeguards in the market.
• The GENIUS Act, signed into law, sets a development timetable that could keep regulations in flux for years, with implementation triggered either 18 months after enactment or 120 days after agencies approve implementing rules.
• Separately, New York’s political landscape adds a layer of uncertainty, as potential contenders consider the 2026 AG race, including a Republican bid that frames crypto policy as a defining issue.

Among the documentary elements of the story is a CNN report that ties the letter to the broader debate over how to regulate stablecoins and deter illicit activity. The letter argues that the GENIUS Act would not adequately address the risk of fraud and that robust checks and balances are still needed to deter misuse in on-chain markets. The conversation takes on additional urgency as stablecoins become a fixture in payments and liquidity pools, with the onus on regulators to harmonize federal standards with state-level enforcement actions.

On one side of the debate, Circle’s leadership has framed the GENIUS Act as a framework that would “enhance clear consumer protection norms” while ensuring issuers comply with applicable financial integrity rules for countering illicit activity. Dante Disparte, Circle’s chief strategy officer, emphasized that the company has “always prioritized financial integrity and advancing US and global regulatory standards for stablecoins.” He added that the act would clarify responsibilities for combating illicit finance and align Circle with prevailing US regulatory expectations for a regulated financial institution. The quote in the letter contrasts with ongoing criticisms about whether Circle’s policies would be more protective for users than those of its peers.

Tether, by contrast, has argued that it treats fraud and consumer harm with seriousness and maintains a zero-tolerance stance toward illicit activity. However, the company contends that it does not operate under a blanket legal obligation to satisfy every state civil or criminal process in the way a fully regulated financial institution might. Its headquarters are listed as El Salvador, a geographic detail that sometimes shapes perceptions of regulatory alignment and oversight in a rapidly growing, cross-border market for digital assets.

The GENIUS Act’s fate is enmeshed with broader political dynamics. It was signed into law by then-President Donald Trump in July, creating a framework for U.S. stablecoins and setting out a timeline for when its provisions must be implemented. The act requires that implementing rules be in place 18 months after enactment or 120 days after agencies approve the necessary regulations. The timing leaves room for regulatory refinement as agencies craft the rules that will determine how stablecoins operate at the federal level, while state authorities continue to press for stronger consumer protections and enforcement tools.

Why it matters

The core issue at stake is how to balance innovation in digital payments with robust enforcement against illicit activity. The NY attorney general’s letter signals that, in their view, federal legislation like GENIUS should not undermine state-level authority or dilute the incentives for issuers to cooperate with law enforcement in real-time. If the federal framework is perceived as too permissive or ambiguous, actors operating in stablecoin markets may seek to exploit gaps, potentially undermining user trust and the perceived integrity of on-chain ecosystems.

For users and developers building in the space, the dispute underscores the need for transparent custody practices, real-time fraud mitigation, and clear recovery pathways for victims. It also keeps the market aligned with a broader regulatory narrative—one that increasingly emphasizes consumer protection, anti-money-laundering standards, and the strategic use of on-chain data to trace illicit flows. As policy discussions continue, issuers and exchanges may face intensified scrutiny from both federal agencies and state prosecutors, which can influence liquidity, funding costs, and the willingness of traditional financial institutions to engage with crypto-related products.

From a market perspective, the tension between federal frameworks and state enforcement can contribute to a bifurcated regulatory landscape. While clear federal rules may reduce ambiguity for issuers, state-led actions and litigation can maintain a dynamic, sometimes uncertain, operating environment for stablecoins and related services. In this context, market participants will be watching not only the GENIUS Act’s formal implementation but also how states adapt their enforcement posture in response to evolving federal standards and ongoing industry debates.

Additionally, the political dimension surrounding the New York attorney general’s office adds a layer of potential shifts in 2026. A Republican challenger to Letitia James has signaled a crypto-centric platform, arguing that current leadership has leveraged policy battles against the industry. The filing deadline of April 6 for candidates to enter the race underscores the stakes of regulatory policy as a campaign issue. Whether the race reshapes crypto policy emphasis in New York could have ripple effects for how the state collaborates with federal regulators and how market participants assess risk in this jurisdiction.

What to watch next

• Regulatory timelines: Monitor the 18-month and 120-day benchmarks tied to GENIUS Act implementation and regulatory approvals.
• Agency rulemaking: Track any new guidelines from federal agencies outlining how stablecoins must comply with financial integrity and consumer protection standards.
• Enforcement signals: Look for subsequent statements or actions from New York’s AG office or other state prosecutors regarding stablecoin conduct and enforcement priorities.
• Election dynamics: Observe how potential challengers in the 2026 AG race frame crypto policy and whether that stance influences state-level policy direction.

Sources & verification

• CNN report detailing the NY attorney general’s letter and its stance on the GENIUS Act and stablecoins.
• Statements and comments from Circle’s Dante Disparte regarding the GENIUS Act and regulatory alignment.
• The discussion around Tether’s approach to fraud and the stated perspective on USDT custody and enforcement actions.
• The GENIUS Act’s development timeline and signing into law, including the stated implementation windows.
• The referenced YouTube video embedded in the article for additional context on the discussion.

GENIUS Act scrutiny reshapes stablecoin enforcement debate

The letter from New York’s top prosecutor and the district attorneys represents a pointed challenge to the GENIUS Act’s regulatory philosophy at a moment when stablecoins are moving from niche financial instruments to mainstream payment rails. By calling for tighter guardrails and asserting that the act could unintentionally shield bad actors, state officials are pushing for a regulatory design that couples innovation with robust consumer protections and aggressive enforcement. The exchange between Circle and Tether illustrates a broader tension over who bears responsibility for safeguarding users in a rapidly evolving digital economy, and whether federal policy can or should preempt more aggressive state-level measures.

As policymakers map a path forward, market participants are keeping a close eye on the signals that emerge from both Washington and Albany. The ongoing dialogue around stablecoins—through legislation, enforcement, and corporate policy—will influence how quickly new products scale, how liquidity is managed, and how risks are priced in digital asset markets. The discussion around USDT and Circle—two of the most closely watched players in the sector—highlights the critical need for transparency, verifiable controls, and timely cooperation with law enforcement to protect consumers and preserve market integrity.

This article was originally published as NY Prosecutors Warn About GENIUS Act on Fraud: Report on Crypto Breaking News – your trusted source for crypto news, Bitcoin news, and blockchain updates.