Prosecutors in Wisconsin and New York accuse Circle of stalling on court orders to return stolen USDC to scam victims. Wisconsin filed a criminal complaint over 381,000 USDC tied to a romance scam, while critics point to the interest Circle earns on frozen reserves.
Prosecutors in two states say Circle has declined or delayed complying with court orders meant to recover stolen digital assets for scam victims. The pressure centers on the USDC issuer's claim that it cannot easily reverse frozen tokens.
Wisconsin files a criminal complaint
Thomas Binger, a prosecutor in Walworth County, Wisconsin, filed a misdemeanor criminal complaint accusing Circle of refusing to comply with a December warrant, according to an ICIJ report. That 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 the frozen tokens in a suspect's wallet and issue an equal amount of new USDC to a wallet held by the local sheriff's office. Circle froze the funds immediately when ordered last August but later said it lacked the technical ability to burn and reissue tokens.
A pattern of complaints
The case adds to earlier concerns. Blockchain investigator ZachXBT accused Circle of compliance lapses tied to more than $420 million in illicit USDC flows that the firm allegedly failed to freeze across 15 documented cases dating back to 2022. Circle also drew criticism for reportedly not freezing stolen USDC linked to the Drift Protocol exploit.
Circle called the Wisconsin complaint meritless, arguing that prosecutors misunderstood its capabilities. The company maintains it freezes assets only through a lawful process, a policy it says shields users from arbitrary interference.
Frozen funds and a federal deal
In New York, prosecutors wrote to U.S. senators in January accusing Circle of declining freeze requests unless a court order accompanied them. Some critics tie the reluctance to money, since frozen assets keep earning interest from the reserves backing the stablecoin. Researcher Yury Serov estimates the frozen USDC at a minimum of 119 million tokens.
Yet a footnote to the Wisconsin filing revealed that Circle had reached a general agreement with federal prosecutors on a mechanism to compensate victims, permanently freezing flagged tokens and minting equal replacements. Circle did not say whether that process could apply to the Wisconsin case.
Source: Bitcoin.com News
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