NY Prosecutors Say GENIUS Act Could Shield Tether and Circle from Fraud Liability
New York Attorney General Letitia James and four New York district attorneys warned that the proposed federal stablecoin bill known as the GENIUS Act could weaken fraud protections and limit accountability for stablecoin issuers. In a public letter and filings they named Tether and Circle, alleging Tether selectively freezes stolen USDT and leaves many victims without recourse, and that Circle’s anti-fraud support is weaker than it publicly claims. Prosecutors argued the bill’s exemptions and definitions could reduce transparency, curtail reporting and auditing requirements, and restrict enforcement tools—providing “legal cover” to issuers and making it harder to recover funds tied to financial crime. Circle said it complies with U.S. financial integrity and consumer-protection rules and supports stronger protections under the GENIUS Act; Tether defended its anti-illicit-activity policies and noted it is not governed by some state bank procedures. The dispute adds pressure to ongoing federal and state debates over stablecoin regulation and could influence legislative language on disclosure, AML controls, reserve transparency and regulator authority—issues that matter to traders assessing counterparty and systemic risk in stablecoins.
Bearish
The news is bearish for the mentioned stablecoins (USDT, USDC) because it signals heightened legal and regulatory risk. Public criticism from New York prosecutors—naming Tether and Circle and alleging selective freezes, weak anti-fraud responses, and potential legal cover under the GENIUS Act—can undermine market trust in these tokens’ custodial and reserve practices. Short-term effects: increased selling pressure or wider spreads as traders reduce exposure to counterparty risk and seek alternative stablecoins or fiat rails; potential volatility during legislative hearings or enforcement actions. Medium-to-long-term effects: if lawmakers amend the bill to impose stricter disclosure, audit and AML rules, affected issuers may face higher compliance costs, operational constraints, or reputational damage—placing downward pressure on demand for USDT/USDC as liquidity providers and institutional users reassess counterparty risk. Conversely, clearer, stricter rules could restore confidence over time, but the near-term impact remains negative due to regulatory uncertainty and reputational harm.