Key Insights:
- Recent crypto regulation news shows that top New York prosecutors are dissatisfied with the anti-fraud measures in the GENIUS Act.
- The attorneys wanted to press lawmakers on the risks they see in the new stablecoin law.
- In their view, it gives stablecoin issuers space to dodge key oversight rules that regulators use to track risky activity.
Recent crypto regulation news shows top attorneys and prosecutors in New York are not adequately satisfied with the GENIUS Act. They alleged that the new stablecoin law fails to provide comprehensive anti-fraud measures. As such, crypto companies may get the insurance to profit from fraudulent activities.
Crypto Regulation News: New Stablecoin Rules May Offer Cover to Bad Actors, Prosecutors Say
According to a CNN crypto regulation news report, New York Attorney General Letitia James joined four district attorneys, including Manhattan’s Alvin Bragg, to press lawmakers on the risks they see in the new law. They argued that the measure effectively stamps stablecoins with mainstream credibility.
However, they argued that the crypto regulation framework still leaves too many gaps. In their view, the Crypto Regulation Act gives stablecoin issuers space to dodge key oversight rules. Regulators use those rules to track risky activity.
For this reason, the new crypto regulation law misses the mark where it counts. That’s because it will make it difficult to track and shut down suspicious transactions. Those transactions could be related to drug trafficking, money laundering, and terrorism.
At its core, the law establishes a basic safety net for these coins. It requires issuers to hold reserves, much like banks must keep enough assets on hand to meet what they owe.
In practice, that means stablecoin companies must fully back every coin they put into circulation. They have to match them one-for-one with liquid holdings, such as U.S. dollars or short-term U.S. Treasury bills.
The Genius Act Could Encourage Firms to Hold Crypto Fraud Proceeds
James and Bragg said the bigger problem is what the GENIUS Act leaves out. They pointed to the lack of a clear crypto regulation, forcing companies to return stolen money to fraud victims.
Because of that gap, they warned that the law could encourage stablecoin issuers to retain stolen funds rather than return them. In their view, it may even give firms legal cover when they choose to retain those proceeds rather than make victims whole.
They also argued that this is not a theoretical risk. In their view, the pattern is already showing up in the market.
They pointed to the two biggest stablecoin issuers, Tether and Circle. The prosecutors said both firms have, at times, slowed or limited efforts by law enforcement to seize funds and get them back to victims.
As a result, they claimed the companies still earn money from assets tied to crimes, even as the fraud they described continues to be a major feature of stablecoin markets.
Prosecutors Point Out Issues with Tether
The prosecutors said Tether, the largest stablecoin issuer by volume, has the power to freeze suspicious activity involving its USDT token. However, they argued that Tether uses that tool unevenly.
In their telling, freezes happen on a case-by-case basis and mainly when federal law enforcement is involved. That, they said, leaves many victims with little hope of recovery.
Consequently, the prosecutors warned that stolen funds moved into USDT may never be frozen, seized, or returned. They also claimed that Tether effectively chooses when to cooperate and that the current framework does not prevent the company from halting reissuance altogether.
Tether told CNN that it takes fraud, consumer harm, and misuse of USDT seriously. It said it runs a zero-tolerance approach to illegal activity.
Tether, which is based in El Salvador, said it doesn’t have the same legal duties at the state level as a financial firm regulated in the U.S. However, it still works with law enforcement to protect customers and eliminate threats.
Victims Left Waiting as Frozen Crypto Stays Put, Prosecutors Say
Meanwhile, the prosecutors also took aim at Circle, the second-largest stablecoin issuer. They noted that Circle is publicly traded and headquartered in New York, and said the company presents itself as a partner in the fight against financial fraud. However, they argued that Circle’s crypto regulation policies leave victims worse off than Tether’s.
Prosecutors said Circle could still leave victims empty-handed even after freezing suspicious funds. They argued the firm retains the money rather than returning it, while earning interest on the reserves backing those tokens.
That, they said, creates a clear incentive: freezing allegedly stolen funds without returning them allows Circle to continue collecting interest by investing the reserves.
Source: https://www.thecoinrepublic.com/2026/02/03/crypto-regulation-news-ny-prosecutors-reject-genius-act-anti-fraud-measures/
