Circle Accused by New York and Wisconsin Prosecutors of Hindering USDC Recovery for Scam Victims
Stablecoin issuer Circle is facing scrutiny from prosecutors in Wisconsin and New York for allegedly delaying or refusing to comply with court orders to return stolen digital assets to scam victims.
Wisconsin Charges Thomas Binger, a prosecutor in Walworth County, Wisconsin, has filed a misdemeanor criminal complaint accusing Circle of refusing to comply with a December warrant. The warrant ordered the company to facilitate the seizure of roughly 381,000 USDC stolen from a victim of a romance-investment scam. The warrant directed Circle to invalidate frozen tokens in the suspect’s wallet and issue new USDC to the sheriff’s office. Circle froze the funds last August but claimed it lacked the technical ability to burn and reissue tokens.
Broader Concerns The allegations add to previous concerns. Blockchain investigator ZachXBT accused Circle of compliance lapses tied to over $420 million in illicit USDC flows it allegedly failed to freeze across 15 cases since 2022. Circle also faced criticism for not freezing stolen USDC linked to the Drift Protocol exploit.
Circle’s Response Circle maintains it freezes assets only through a lawful process, arguing this protects users from arbitrary interference. It called the complaint meritless, claiming prosecutors misunderstood its capabilities and failed to consider alternatives.
New York Allegations New York prosecutors wrote to U.S. senators in January accusing Circle of declining freeze requests without court orders and failing to return stolen stablecoins even after court orders.
Financial Incentives Critics argue Circle’s reluctance may be driven by financial incentives. Frozen assets generate interest from the reserves backing USDC. Blockchain researcher Yury Serov estimates frozen USDC at a minimum of 119 million tokens.
Federal Agreement In a footnote to its Wisconsin filing, Circle revealed it reached a general agreement with federal prosecutors on a new mechanism: flagged stablecoins could be permanently frozen and removed from circulation, with Circle minting new tokens of equal value for victims. Circle did not say if this applies to the Wisconsin case or is part of a binding settlement.