Circle Faces Rare Criminal Complaint Over Stolen USDC Recovery

Circle, the $17-billion stablecoin issuer of USDC, is facing a rare criminal complaint in Wisconsin over its handling of stolen funds. Prosecutors allege that Circle disobeyed court orders to recover approximately 381,000 stolen USDC in a romance-investment scam case.

The dispute centers around whether Circle had the technical capability to invalidate and reissue the frozen tokens as ordered by the court. Circle claims it did not have this ability, but blockchain researcher Yury Serov estimates that they keep at least 119 million USDC tokens frozen. This contradicts New York prosecutors' claim that Circle does not return stolen funds to victims.

The case highlights a regulatory gap in the handling of stolen cryptocurrency. The GENIUS Act gave stablecoins federal legitimacy but did not address what happens once tokens reach a scammer's wallet. Tether, a rival stablecoin issuer, has disclosed reissuing $1.1 billion worth of illicitly obtained tokens and freezing $4.7 billion tied to illicit activity.