Circle, the issuer of the USDC stablecoin, is facing accusations from law enforcement in Wisconsin and New York that it refused to help recover stolen funds for scam victims, even when courts ordered the company to act.
According to a new ICIJ report, in Walworth County, Wisconsin, state prosecutors filed a criminal complaint against Circle after the company allegedly refused to comply with a warrant ordering it to help seize stolen USDC. The complaint lists one misdemeanor count and alleges Circle intentionally disobeyed, resisted or obstructed the court order.
In a filing last week, the company called the complaint meritless and said it should be dismissed.
Circle argues that it doesn't have the technical ability to do what prosecutors demand and that the Wisconsin court lacks jurisdiction, adding that prosecutors didn't engage with alternatives the company proposed for compensating the victim.
The fight is over recovery
The Wisconsin case centers on about 381,000 stolen USDC. A court ordered Circle last August to freeze the tokens in a private wallet, and Circle did so.
- Then, the dispute began in December, when a judge ordered the company to help seize the funds by invalidating the frozen tokens and sending the same amount of new USDC to a wallet controlled by the Walworth County Sheriff's Office.
But Circle said it can't do that, arguing it doesn't have the ability to invalidate and reissue USDC in the way prosecutors demanded, the report reads.
- Prosecutors say that leaves victims stuck with a strange outcome when the stolen money can be frozen, but still not returned.
ICIJ says some crypto forensic experts question Circle's argument, noting that Tether has used burn-and-reissue methods to return illicit funds in some cases.
- Circle later said in a court filing that it had reached a general agreement with federal prosecutors on another mechanism to compensate victims when certain USDC funds are permanently frozen.
The case follows a separate January letter from New York prosecutors to U.S. senators, where officials accused Circle of refusing to freeze USDC without a court order. Circle argues it freezes tokens only through lawful process.
But prosecutors say court orders can arrive too late because stablecoin transfers move in seconds.
- Milwaukee County police detective Scott Simons told ICIJ he had seen more than a dozen cases where Circle either declined a freeze request or where a court order came too late to stop the money from moving.
New York prosecutors also raised a financial concern. They claimed Circle can continue earning yield on reserve assets backing frozen stolen USDC while victims still don't get their money back.