The Wisconsin State Prosecutor's Office has filed a criminal case against USDC stablecoin issuer Circle. Authorities accuse the company of deliberately ignoring a court order to return approximately $381,000 to a local resident who lost the funds due to scammers.
This unprecedented step has intensified long-standing debates about the limits of responsibility for digital coin creators. Regulators and the crypto community are now trying to determine whether issuers are obligated to compensate losses for affected users.
How a romantic scam escalated into legal action against Circle
In May 2025, a resident of Walworth County received a message from a scammer posing as Lenora. Under the guise of a romantic relationship, she convinced him to invest part of his savings in USD Coin (USDC) — a dollar-pegged stablecoin — on a fake investment platform.
Court documents indicate that the district court ordered Circle to freeze these tokens as early as August last year, and the company complied with the request. However, in December, the judge ordered the issuer to cancel these coins and issue an equivalent amount to the local sheriff's accounts. Reports state that Circle refused to comply with this order, leading to an administrative case being filed against the company — valued at $17 billion — for obstruction of justice. The company called the allegations unfounded in a motion to dismiss the case, citing technical limitations and lack of jurisdiction.
"The tools at our disposal are no longer keeping pace with the tools used by scammers," said Prosecutor Thomas Binger.
According to Detective Scott Simons from Milwaukee County, Circle regularly avoids or delays blocking. He has documented over a dozen cases where court orders arrived too late. Notably, the FBI announced record losses from crypto crimes in 2025, exceeding $11.4 billion. Meanwhile, over 18,500 people lost amounts exceeding $100,000, and law enforcement methods are clearly lagging behind new schemes using artificial intelligence.
Why Tether returns stolen funds while Circle does not
The company's main competitor, issuer of the largest stablecoin USDT, Tether, often assists investigations even without formal court rulings. Tether's management claims to have frozen crypto assets totaling $4.7 billion that were linked to illegal activity. The company's specialized software allows remote cancellation of coins at hacker addresses and reissuance for victims. Thanks to this technology, the company has been able to return approximately $1.1 billion to rightful owners.
Meanwhile, Tether's T3 unit, in collaboration with TRON, has frozen over $450 million. Additionally, U.S. authorities seized illegal funds in USDT worth $61 million in one case.
The differences are explained by architectural features and company approaches, not technical blockchain limitations. Circle, which went public on the New York Stock Exchange in June 2025, only blocks tokens when there are legal grounds. This practice helps avoid arbitrary or politically motivated blocks. As a result, USDC has strengthened its position in Europe amid the introduction of the MiCA regulation.
At the same time, offshore Tether follows a flexible cooperation policy to improve its compliance reputation.
According to Joshua Cooper-Duckett of Cryptoforensic Investigators, Circle could modify the token code and implement the ability to "burn" tokens. Circle's Head of Policy, Dante Disparte, noted that technical tools exist but emphasized that legal mechanisms for rapid response are currently lacking.
New York prosecutors highlight the issue of incentives. In January, they informed senators that Circle continues to earn income from reserves backing the frozen tokens. According to blockchain analyst Yuri Serov, at least 119 million USDC are currently frozen.
Circle stated that it recently reached an agreement with federal prosecutors regarding a compensation mechanism for victims. Under this process, "dirty" tokens will be permanently blocked, and new ones will be issued to owners. If the mechanism affects Walworth County, multiple administrative cases could be initiated. The final decision may set standards for stablecoin issuer participation in compensating fraud victims.