GENIUS Act: The Law That Was Meant to Protect Crypto Victims Protects Tether and Circle

Lenora lost $381,000. Not in a market crash, not in a hack: it was stolen by a man who said he loved her, met online, who convinced her to pour her savings into USDC — the “safe” stablecoin issued by Circle. It’s a textbook case of pig butchering, the romance scam that fattens the victim’s trust before slaughtering them financially. In August 2025 police traced the funds. Circle froze them. Then, for months, it returned them to no one.

Not because of some insurmountable technicality. By choice. And that choice is today covered, almost encouraged, by a federal US law that Congress sold as the shield protecting consumers from crypto fraud: the GENIUS Act, signed by Trump on July 18, 2025. A year after the signing, Lenora’s case — along with dozens of other victims’ — shows what happens when the law meant to protect you is written with the help of those who, shortly after, profit from it.

The Wisconsin case: $381,000 stolen, never returned

The case file is public: criminal complaint 2026CM000286, Walworth County, Wisconsin, filed by prosecutor Thomas Binger. Victim: a county resident, defrauded through the classic romance scheme in May 2025. In August 2025 Circle executes a freeze on the wallets involved — a technical function the company has built directly into the USDC smart contract from the start. In December 2025 a court order arrives for “burn-and-reissue”: burn the stolen tokens and issue new ones directly into the victim’s account. Circle refuses, citing “technical limitations.” Forensic expert Joshua Cooper-Duckett, tasked with verifying the claim, disputes it: burn-and-reissue is technically feasible, Circle knows it, it’s a business choice, not an engineering limit. Meanwhile Circle has filed a motion to dismiss for lack of territorial jurisdiction — rejected in subsequent months by prosecutors, who in July 2026 raised the stakes by filing a criminal contempt complaint, no longer just a civil request.

While the case languishes in court, that $381,000 remains deposited in Circle’s reserves. And USDC’s reserves — by contract, by prospectus, by business model — generate interest. On every frozen dollar, including victims’ dollars, Circle keeps earning.

Globally, the amount frozen and never returned is estimated at around $119 million (estimate by blockchain researcher Yury Serov). According to AMLBot data, between 2023 and 2025 Circle froze roughly $109 million in funds linked to illicit activity — against $3.3 billion frozen by Tether over the same period. Thirty times more. Tether has returned a total of $1.1 billion to victims, working with more than 340 investigative agencies across 67 countries. Circle, according to a letter from New York prosecutors to Congress (January 26, 2026), has returned zero dollars.

Congress’s law: signed in July 2025, already insufficient

The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) is the first federal US law to regulate stablecoins. On paper, it’s a milestone: mandatory 1:1 reserves, periodic audits, licensing requirements. In practice, according to the letter signed by New York Attorney General Letitia James, Manhattan District Attorney Alvin Bragg, and three other district attorneys, the law grants issuers an “imprimatur of legitimacy” without imposing corresponding obligations toward fraud victims. The text — the prosecutors write — contains no language on restitution: no legal obligation to return stolen funds traceable to a documented crime. When an issuer freezes a wallet, the law doesn’t say what must happen next. It can “hoard” the underlying cash indefinitely, instead of forwarding it to law enforcement or the victim, all while continuing to collect interest on those funds. The prosecutors call it, in no uncertain terms, a “gift” to companies that “profit from fraud” — a gift to businesses that, indirectly, benefit from fraud.

The man who helped write the law — and was hired a month later by those who benefit from it

Here the story stops being merely regulatory and becomes political. According to a Bloomberg investigation (Big Take, July 22, 2026, based on court filings and cross-referenced reporting), Howard Lutnick — at the time head of Cantor Fitzgerald, the bank that physically manages Tether’s reserves — worked behind the scenes in 2024 to weaken certain provisions of the bill under discussion, while publicly defending the soundness of Tether’s reserves. A court filing cited by Bloomberg reports that Tether’s president told an associate that it was Lutnick who had blocked an earlier, tougher version of the bill.

At the same time, Bo Hines, then head of digital asset policy at the White House, pushed for rapid passage of the text and for a three-year compliance grace period — not the 18 months proposed by Democrats — described as “non-negotiable” by the White House. That concession was exactly what Tether wanted.

Trump signs the GENIUS Act on July 18, 2025. One month later, Tether hires Bo Hines as an advisor. Shortly after, it promotes him to CEO of the new product USAT (Tether USA), the vehicle through which the company enters the regulated US market created by that very law.

This is not an accusation of a crime: neither of the two conducts described by Bloomberg is, to date, the subject of any known criminal charge. It is a documented fact of timing and roles — who helped write the rules of the game, and who sat down at the table immediately after, on the side of those who exploit those rules.

Two issuers, two opposite paths

The contrast between the two main stablecoin issuers could not be sharper. On one side, Tether: in February 2026 it cooperates in the seizure of $61 million in USDT tied to a romance scam in Raleigh, North Carolina — CEO Paolo Ardoino issues a public statement on the cooperation. In January 2026, in a case linked to pig butchering, $225 million in USDT is transferred directly to the issuer — a “direct-to-issuer” model faster than the traditional route via an exchange. On the other side, Circle: an ongoing criminal contempt complaint, zero dollars returned on the documented record, a motion to dismiss filed instead of cooperation.

It’s a particularly bitter paradox for Europe: since July 1, 2026, following MiCA’s entry into force, USDC is effectively the only dollar stablecoin still legally available to European users — Tether was forced into delisting from the main regulated EU exchanges. Brussels has imposed on European citizens the very issuer that, according to US prosecutors, systematically refuses to return stolen funds.

The numbers behind the crime: why stablecoins are at the heart of the problem

The Chainalysis 2026 Crypto Crime report puts the total volume of illicit on-chain activity in 2025 at at least $154 billion (+162% year over year). The most relevant figure for this investigation: stablecoins account for 84% of all illicit transaction volume in 2025. The law Congress wrote to regulate stablecoins is therefore regulating — for better or worse — the instrument now dominant in crypto financial crime.

On the front of direct victims, the numbers from the FBI Internet Crime Complaint Center (IC3) for 2025: Americans lost $11.37 billion to crypto scams, up 22% year over year. Those over 60 alone account for $4.35 billion — 38% of the total — with elder fraud up 59%. The average payment per pig-butchering victim rose from $782 to $2,764 (+253%) between 2024 and 2025, according to Chainalysis data cited by CryptoTimes. AI-powered scams — voice cloning, synthetic KYC documents — caused $893 million in documented losses, up 1,400% year over year.

The joint FBI-Secret Service program Operation Level Up notified nearly 9,000 victims from January 2024 to March 2026 — 77% of whom had no idea they had been scammed — recovering approximately $562 million. One chilling and underreported detail: 93 victims were referred for suicide-prevention intervention.

Circle’s defense and the skeptical voices

Circle, through its Chief Strategy Officer Dante Disparte, publicly maintains that it can block wallets (blocklisting) but cannot technically “burn and reissue” tokens into third-party self-custodial wallets without controlling their private keys — and states it is working with the Department of Justice on a federal asset-forfeiture framework to compensate victims in a structured way, rather than case by case. This is a legitimate position to report: if the promised framework actually materializes and is timely, it would change the assessment of this story. But it must be weighed against the verified fact that the technical mechanism exists — confirmed by an independent, court-appointed forensic expert — and against the absence, to date, of any documented restitution comparable to Tether’s.

On the Lutnick-Hines front, it must be said with equal clarity: no court has established wrongdoing. The court filing cited by Bloomberg is evidentiary material in a piece of journalism, not a ruling. The fact that Hines was hired by Tether a month after the law was signed is, in itself, only chronology — it does not prove a pre-existing agreement. It is the consistency across multiple independent episodes (pushing for the three-year grace period, then immediate hiring; Cantor’s management of Tether’s reserves, then publicly defending those same reserves while the law was being written) that makes the story significant, not a single isolated fact.

What still needs to be asked

The GENIUS Act introduced reserve standards the industry had never before had by law. That is a fact, not an opinion. But a year after signing, the Wisconsin case shows that the law does not answer the simplest question a victim can ask: if my stolen money is found and frozen, does it come back to me? For Lenora, as of today, the answer is still no. And the man who helped write that law now works for the company that, in the meantime, benefits most from that gap.