Circle, the USDC stablecoin issuer, faces a misdemeanor criminal complaint filed by Wisconsin prosecutor Thomas Binger over alleged non-compliance with a December warrant to seize 381,000 USDC stolen in a romance-investment scam. The warrant directed Circle to invalidate frozen tokens in a suspect's wallet and issue equivalent new USDC to a sheriff's office-controlled wallet, but Circle claims it lacks the technical ability to burn and reissue tokens despite freezing the funds in August. New York prosecutors separately accused Circle in a January letter to U.S. senators of declining law enforcement freeze requests without court orders and failing to return stolen stablecoins even after court orders. The dispute occurs as Circle faces mounting scrutiny over compliance practices, including blockchain investigator ZachXBT's accusation that the company failed to freeze over $420 million in illicit USDC flows across 15 cases since 2022 and criticism for not freezing funds linked to the Drift Protocol exploit.
Wisconsin Prosecutor Files Criminal Complaint Over 381,000 USDC Seizure Warrant
Thomas Binger, a prosecutor in Walworth County, Wisconsin, filed a misdemeanor criminal complaint accusing Circle of refusing to comply with a December warrant, according to an ICIJ report. The warrant ordered Circle to "facilitate the seizure" of approximately 381,000 USDC stolen from a victim of a romance-investment scam. The warrant directed Circle to invalidate the frozen tokens in a suspect's digital wallet and issue an equivalent amount of new USDC to a wallet controlled by the local sheriff's office.
Circle froze the funds immediately when ordered in August but later stated it lacked the technical ability to burn and reissue tokens. Circle called the complaint "meritless," arguing that prosecutors misunderstood its capabilities and failed to engage with alternative solutions. The company maintains it freezes assets only when compelled through "lawful process," stating this policy protects users from arbitrary or politically motivated interference.
New York Prosecutors Accuse Circle of Declining Law Enforcement Freeze Requests
New York prosecutors wrote a letter to U.S. senators in January accusing Circle of declining law enforcement freeze requests unless accompanied by a court order. The prosecutors also accused Circle of failing to return stolen stablecoins even after courts ordered the company to do so.
The allegations add to concerns raised about Circle in recent months. Blockchain investigator ZachXBT accused Circle of compliance lapses tied to more than $420 million in illicit USDC flows that Circle allegedly failed to freeze across 15 documented cases dating back to 2022. Circle also faced criticism for reportedly not freezing stolen USDC linked to the Drift Protocol exploit.
Critics Argue Frozen Assets Generate Interest for Circle
Some critics argue Circle's reluctance to act is driven by financial incentives. Frozen assets continue to generate interest from the reserves backing USDC. Blockchain researcher Yury Serov estimates the value of frozen USDC at a minimum of 119 million tokens.
Crypto-forensics experts say Circle could update its token governance code to support burning and reissuing, but Circle has not confirmed whether such an upgrade is planned.
Circle Reaches Federal Agreement on Permanent Freeze Mechanism
In a footnote to its Wisconsin filing, Circle reportedly revealed it had reached a general agreement with federal prosecutors on a new mechanism to compensate victims. Under this arrangement, flagged stablecoins could be permanently frozen, removing them from circulation. Circle would then mint new tokens of equal value and issue them to victims.
This arrangement functionally mirrors the burn-and-reissue process critics say Circle should already support. Circle did not say whether this mechanism could be applied to the Wisconsin case or whether the agreement is part of a binding settlement.
FAQ
What did Wisconsin prosecutors charge Circle with in December?
Wisconsin prosecutor Thomas Binger filed a misdemeanor criminal complaint accusing Circle of refusing to comply with a December warrant to seize 381,000 USDC stolen in a romance-investment scam. The warrant ordered Circle to invalidate frozen tokens and issue new USDC to a sheriff's office-controlled wallet, but Circle claims it lacks the technical ability to burn and reissue tokens.
Why do critics say Circle is reluctant to return frozen USDC?
Critics argue Circle's reluctance is driven by financial incentives, as frozen assets continue to generate interest from the reserves backing USDC. Blockchain researcher Yury Serov estimates the value of frozen USDC at a minimum of 119 million tokens. Crypto-forensics experts say Circle could update its token governance code to support burning and reissuing, but Circle has not confirmed whether such an upgrade is planned.
