Prosecutors Say Circle Blocked Return of Stolen USDC

Prosecutors in New York and Wisconsin say Circle, the issuer of the USDC stablecoin, declined or delayed complying with court directives to return stolen tokens to victims of scams.

Walworth County prosecutor Thomas Binger filed a misdemeanor criminal complaint in Wisconsin accusing Circle of refusing to comply with a December warrant. The warrant ordered the company to “facilitate the seizure” of roughly 381,000 USDC taken from a victim of a romance-investment fraud. The filing says Circle froze the funds when ordered in August but later told authorities it lacked the technical ability to burn the frozen tokens and reissue replacements to a sheriff’s office wallet.

New York prosecutors sent letters to U.S. senators in January alleging Circle turns down law enforcement freeze requests unless accompanied by a court order and has in some cases not returned stolen stablecoins even after court directives. Those letters are part of a wider inquiry into how quickly and under what conditions Circle acts to recover stolen funds.

Circle described the Wisconsin complaint as “meritless,” arguing prosecutors misunderstood its technical capabilities and did not pursue alternative solutions. The company maintains it freezes assets only when compelled through a lawful process and that unilateral token burning or reissuance without court authority would risk arbitrary interference with user funds.

Independent blockchain investigators provided additional details to prosecutors and online researchers. One investigator documented more than $420 million in USDC that he says Circle failed to freeze across 15 cases dating back to 2022. A blockchain analytics specialist estimates at least 119 million USDC are currently frozen on-chain. Some observers note frozen reserves can continue to generate interest for the assets backing USDC.

Technical experts say Circle could modify its token governance code to allow burning flagged tokens and issuing replacements to victims. In a footnote to the Wisconsin filing, Circle disclosed it had reached a general understanding with federal prosecutors on a possible mechanism: permanently freeze flagged USDC, remove those tokens from circulation, mint new tokens of equal value and issue them to victims. Circle has not confirmed whether that mechanism applies to the Wisconsin case or whether the understanding is a binding agreement.

The matters involve both criminal and civil processes. Wisconsin’s action is a local misdemeanor complaint, while New York prosecutors have raised concerns with federal lawmakers and agencies. Law enforcement in multiple jurisdictions have sought technical assistance from firms that manage stablecoins to recover funds tied to scams, hacks and exploits; outcomes in those requests have varied, with some resulting in immediate freezes and others in delayed or partial action.