US prosecutors say GENIUS Act bolsters stablecoin firms while leaving fraud victims exposed

New York’s top legal officials have formally challenged the practical effects of the GENIUS Act, warning that the law as written strengthens the operational position of large stablecoin issuers without creating clear pathways to restore stolen assets to victims. The prosecutors contend the statute imposes bank-like reserve requirements but stops short of mandating restitution or compelled reissuance of stablecoins when those assets represent illicit proceeds. They drew particular scrutiny to the two largest issuers, arguing that existing platform controls for freezing or withholding tokens are exercised inconsistently and that issuers may benefit financially by retaining frozen reserves. The letter quantifies the concern by pointing to estimated profits derived from reserve investments and a discrete pot of frozen funds held by one issuer, using those figures to illustrate a systemic incentive to resist returning assets. Prosecutors also connect the issue to broader market trends: stablecoins now dominate transaction volume in crypto markets and are implicated in a disproportionate share of illicit flows, which complicates enforcement and victim recovery. Industry representatives responded by stressing compliance with prevailing financial rules and cooperation with regulators, framing the statute as an advance for consistent standards. Congressional backers of the bill maintain issuers must follow lawful orders and said additional legislative adjustments remain under consideration to bolster victims’ protections. The dispute exposes a gap between creating prudential guardrails for stablecoins and delivering operational authorities to law enforcement and courts to secure timely restitution. Beyond immediate litigation or administrative friction, this debate could shape how custodial powers, court orders and contractual terms are constructed into future rulemaking for digital asset firms. If lawmakers or regulators add explicit restitution mechanisms, issuers may face new operational and liquidity demands; if not, prosecutors warn that victims will struggle to reclaim assets even as reserve investments continue to generate yield for issuers. The conflict also raises compliance design questions for firms that straddle banking rules and blockchain-native capabilities, and it will likely inform both enforcement priorities and legislative revisions in the coming sessions.