Circle Faces Criminal Complaint Over Stance on Recovering Stolen Crypto
A criminal complaint filed by Wisconsin prosecutors against Circle, the company behind the USDC stablecoin, has reignited a critical debate: why does the world’s second-largest stablecoin issuer appear significantly less inclined than its competitor Tether to assist law enforcement in recovering stolen cryptocurrency?
An investigation by the International Consortium of Investigative Journalists (ICIJ), published on July 8, highlights three key issues fueling this discussion. Circle maintains that it only freezes funds upon receiving valid legal orders. The company also disputes claims that it possesses the capability to simply “burn” and reissue stolen tokens, and it rejects allegations from New York prosecutors that it profits from leaving frozen assets untouched. Critics, however, argue that this policy leaves victims of scams in limbo while their funds disappear.
The current legal challenge originated from a romance scam in Walworth County, Wisconsin. A resident, identified only as “Victim #1,” was persuaded to purchase USDC and transfer approximately 381,000 tokens to what was later revealed to be a fraudulent investment platform. After investigators successfully traced the funds, a judge issued an order for Circle to freeze the associated wallet, a directive the company promptly followed.
Months later, the court escalated its actions, ordering Circle to invalidate the frozen tokens and issue an equivalent amount of new USDC to the Walworth County Sheriff’s Office. Circle refused, citing a lack of technical ability to burn and reissue USDC held within a third-party wallet. Prosecutors responded by filing a criminal complaint, a rare move against a company of Circle’s stature.
Circle subsequently petitioned the court to dismiss the case, asserting that the Wisconsin court lacked jurisdiction and that prosecutors had disregarded alternative proposals it had put forth to compensate the victim. Thomas Binger, the Walworth County prosecutor, stated that the dispute underscores the speed at which scammers can move funds, often outpacing the legal system.
The Wisconsin case is not the sole instance raising concerns. Earlier this year, New York prosecutors informed U.S. senators that Circle typically requires court orders before freezing USDC and has not consistently returned stolen funds even after courts have authorized their release. Given that stablecoin transactions settle within seconds, investigators contend that valuable time is frequently lost before the necessary legal documentation is finalized.
New York prosecutors also leveled a more serious accusation, arguing that Circle continues to earn interest on the reserve assets backing frozen USDC. This, they contend, provides the company with minimal financial incentive to expedite the return of those funds. Circle has not acknowledged this claim.
Blockchain researcher Yury Serov estimates that at least 119 million USDC tokens are currently frozen. While these tokens cannot be moved, they remain backed by reserve assets unless a permanent removal process is initiated.
Circle’s technical explanation has also drawn criticism. Joshua Cooper-Duckett of Cryptoforensic Investigators told ICIJ that the company could modify its smart contracts to facilitate the burning and reissuing of tokens held in third-party wallets. Circle did not respond when questioned about its capacity to implement such changes.
A detail from the court filings notably caught the attention of investigators. Circle disclosed that it had previously discussed a victim compensation process with federal prosecutors that involved permanently freezing stolen tokens before issuing replacement USDC. The company did not clarify whether this arrangement extends beyond federal cases.
The disparity between Circle and Tether’s approaches is stark. Data from AMLBot indicates that Tether froze approximately $3.3 billion in USDT across more than 7,200 wallets between 2023 and 2025. In contrast, Circle froze about $109 million in USDC during the same period, a difference of roughly 30 times by value.
Part of this discrepancy can be attributed to Tether’s burn-and-reissue mechanism. After freezing stolen USDT, the company can destroy those tokens and issue uncompromised replacements to law enforcement or victims. Tether states it has already reissued around $1.1 billion and frozen $4.7 billion linked to illicit activities. Circle does not currently offer a similar public process for third-party wallets, although its court filings suggest it has engaged in discussions about comparable arrangements with federal authorities.
The companies also draw a line in different places regarding intervention. Tether has indicated that it sometimes acts before court involvement if law enforcement requests assistance. Circle, conversely, maintains that it only acts through formal legal channels, arguing this approach safeguards users from wrongful or politically motivated freezes. Investigators counter that by the time such orders are issued, stolen cryptocurrency is often long gone.
Milwaukee County detective Scott Simons told ICIJ that he has encountered over a dozen cases where Circle either declined an early freeze request or where a court order arrived too late. For many victims, he noted, the outcome is simply that their money is lost.
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