Circle faces a criminal complaint in Wisconsin after prosecutors alleged the stablecoin issuer refused to carry out a warrant to recover about 381,000 USDC stolen from a scam victim. The case tests how quickly authorities can move to recover cryptocurrency after a court orders funds frozen.
The Walworth County dispute began around May of last year, according to court records. A resident identified as “Victim #1” received an unsolicited text from someone calling herself Lenora, who presented herself as a romantic partner and touted her investment expertise.
Lenora directed the man to convert part of his savings to USDC and deposit it on a bogus investment platform, the records say. A county court ordered Circle to freeze the approximately 381,000 tokens last August. Circle complied and froze the assets in a private wallet.
Circle rebuffed efforts to return frozen USDC
In early December, a Wisconsin judge signed a warrant directing Circle to “facilitate the seizure” of the frozen USDC. Prosecutors say the order required the company to invalidate the tokens in the suspect wallet and transfer an equal amount of newly issued USDC to a sheriff’s office wallet.
Circle said it could not invalidate and reissue the tokens. The company also argued that the court lacked jurisdiction and that prosecutors had not engaged with its effort to find another way to compensate the victim. In a filing last week, Circle called the complaint meritless and asked that it be dismissed.
Prosecutors filed a single misdemeanor count, alleging Circle intentionally disobeyed or obstructed the court. Karen Greenway, a former FBI agent and financial crime expert, told the International Consortium of Investigative Journalists that a state criminal charge against a major financial firm is highly unusual.
Thomas Binger, the Wisconsin prosecutor, said cryptocurrency transactions make it difficult to identify perpetrators and recover funds. “The tools that are at our disposal are not keeping up with the tools the criminals are using,” he said.
Fast transfers complicate recovery
New York prosecutors described a related challenge in a January letter to U.S. senators. They said Circle had denied requests to freeze USDC without a court order. Transactions can take seconds, while officials may need longer to obtain judicial approval. A freeze can prevent suspected criminals from moving tokens or converting them to cash.
Circle has said it freezes tokens only when compelled through a “lawful process,” a policy it says protects users from arbitrary or politically motivated interference. The company’s position differs from Tether’s: Tether told ICIJ it grants some law enforcement requests without a court order and has helped freeze about $4.7 billion in assets connected to illicit activity.
Milwaukee County detective Scott Simons said he had seen more than a dozen cases nationwide in which Circle declined a request or received a court order too late to stop transfers. New York prosecutors also alleged that Circle had not honored orders to return stolen funds. Their letter said frozen assets can generate investment interest for Circle.
Circle said in a footnote that it had reached a general agreement with federal prosecutors on a mechanism to compensate victims using certain permanently frozen funds, with equal-value tokens apparently reissued. It did not say whether that method could apply in Wisconsin or whether the arrangement was binding.
Crypto experts cited by ICIJ questioned whether Circle could enable token “burning,” or destruction, followed by reissuance. Tether told ICIJ it had reissued $1.1 billion worth of tokens obtained illicitly. Circle did not answer whether it could update its software to permit the approach. The Wisconsin complaint now puts the company’s ability and obligation to return frozen funds before a court. Readers can compare the allegations with other coverage of losses tied to a crypto scheme, a crypto fraud indictment, and commentary on fraud involving cryptocurrency.
The ICIJ investigation reports that prosecutors continue to seek a way to return the frozen Wisconsin funds.
