Circle Internet Financial, the Boston-based giant behind the $34 billion USDC stablecoin, has entered a dangerous legal war with U.S. prosecutors.
A new investigation by the International Consortium of Investigative Journalists (ICIJ) reveals that law enforcement agencies in multiple states accuse Circle of intentionally rebuffing efforts to help scam victims recover stolen funds, even when presented with valid court orders.
The standoff has escalated to the point of criminal charges. In Wisconsin, prosecutors filed an unprecedented misdemeanor criminal complaint against Circle, alleging the multi-billion-dollar firm “did intentionally disobey, resist, or obstruct” a judicial warrant. Circle has filed a motion to dismiss, claiming the charges are meritless due to inherent technical limitations.
Centralized stablecoin issuers like Circle write a backdoor into their smart contracts. While they cannot access a criminal’s private keys to pull funds out of a third-party wallet, they can trigger a command that permanently freezes or burns (destroys) the tokens at a specific blockchain address. To return money to a victim, the issuer simply reissues (mints) an equivalent amount of new stablecoins into a law enforcement wallet.
The Wisconsin Romance Scam Standoff
The criminal complaint stems from a May 2025 pig butchering romance scam in which a Walworth County, Wisconsin resident was conned into converting their life savings into 381,000 USDC.
By August 2025, Milwaukee County Detective Scott Simons and local prosecutors obtained a court order to freeze the stolen tokens. Circle complied immediately. The conflict intensified in December 2025 when prosecutors secured a seizure warrant requiring Circle to burn the illicit USDC and reissue an equivalent amount to the Walworth County Sheriff’s Office for victim restitution.
Circle refused, maintaining that it cannot perform burn-and-reissue operations on tokens held in third-party wallets. Blockchain forensics expert Joshua Cooper-Duckett pushed back on this position, stating: “The company could update its code to enable seamless burn-and-reissue functionality if it chose to prioritize it.”
The Profit Motive Behind Frozen Reserves
New York prosecutors amplified the criticism in a January 2026 letter to U.S. Senators. They accused Circle of routinely rejecting freeze requests without court orders and failing to return funds even after orders are obtained.
The letter pointed to a clear financial incentive: while USDC remains frozen on Circle’s books, the company continues to earn yield on the underlying cash reserves backing those tokens. Blockchain researcher Yury Serov estimates at least 119 million USDC is currently frozen globally across various cases. This stands in sharp contrast to Tether’s approach.
As detailed in The Crypto Times’ reporting earlier this year, Tether has frozen more than $4.4 billion in USDT linked to illicit activity, worked with over 340 law enforcement agencies across 65 countries, and routinely performs burn-and-reissue operations when presented with proper forfeiture orders. Tether’s more proactive stance has been repeatedly highlighted during the stablecoin wars, especially after it stepped in to help recover funds during the Drift exploit while Circle faced lawsuits over its slower response.
A Pattern of Rising Pig Butchering Scams and Stablecoin Abuse
The Wisconsin case is emblematic of a broader surge in pig butchering scams that has dominated crypto throughout 2025 and 2026. These highly organized operations, often run out of compounds in Southeast Asia using trafficked labor, have shifted heavily toward stablecoins because of their speed and perceived stability. Victims are groomed over weeks or months before being drained, and funds move across chains in minutes.
Circle’s policy of requiring formal legal process before acting has been consistent across multiple high-profile incidents this year, including the LIBRA memecoin scam freeze and the Zama confidential USDC contract dispute. Critics argue this rigidity, while legally defensible, leaves victims exposed during the critical early hours of an exploit or scam.
The Wider Fracture: Binance Ends “Courtesy Freezes”
The Circle standoff is part of a larger unraveling of informal cooperation between major crypto players and law enforcement. Just recently, an internal U.S. Department of Justice memo warned prosecutors that Binance would cease voluntary “courtesy freezes” of stolen crypto starting June 8, 2026, forcing agencies to use slow, formal Mutual Legal Assistance Treaty (MLAT) channels instead.
While Binance has denied any change in its cooperation level and says its Law Enforcement Request System remains active, the memo underscores a new reality: the era of quick, informal freezes that once helped victims recover funds in hours is ending. As global platforms navigate complex international licensing (such as Binance’s Abu Dhabi framework) and stablecoin issuers protect their yield-generating reserves, local law enforcement and scam victims are increasingly left navigating slower, more bureaucratic processes.
What Comes Next
The Wisconsin criminal complaint against Circle represents one of the most direct legal challenges yet to a major stablecoin issuer’s compliance practices. Whether the case proceeds or is dismissed on technical grounds, it has already intensified the long-running debate over what responsibilities centralized stablecoin issuers actually have when their tokens are used in crime.
As pig butchering scams continue to evolve and stablecoin market share remains fiercely contested, the question is no longer just whether issuers can freeze or reissue tokens, but whether they will do so swiftly when victims and law enforcement need them most.
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