Circle Accused of Refusing to Return Stolen USDC to Fraud Victims

The stablecoin issuer Circle is under scrutiny after being accused by Wisconsin and New York law enforcement agencies of not cooperating in returning stolen funds to victims of crypto scams, despite legal rulings. According to an investigation by ICIJ, prosecutors in Wisconsin have filed a criminal complaint against Circle for allegedly failing to comply with a court order regarding the return of stolen USDC.

Legal Challenges and Allegations

The controversy centers around an incident involving a Walworth County resident who fell victim to a romantic crypto scam. The scammer convinced the victim to convert their savings into USDC and transfer them to a fraudulent investment platform. In August 2025, a court ordered Circle to freeze approximately 381,000 USDC, which the company did. However, when another order issued in December demanded that Circle annul the frozen tokens and issue an equivalent amount of new USDC for the sheriff’s office wallet, Circle claimed it was technically unable to comply.
In response, prosecutors alleged that Circle “willfully failed or resisted” executing the court order. While Circle dismissed these accusations as unfounded, they questioned Wisconsin’s jurisdiction over such matters.

Technical Limitations and Industry Comparisons

Despite Circle’s claims of technical constraints, experts like Joshua Cooper-Duckett from Cryptoforensic Investigators suggest that updating smart contracts could potentially allow compliance with such orders. Moreover, other stablecoin issuers like Tether reportedly assist law enforcement more proactively by freezing assets related to illegal activities and reissuing burned tokens.

Potential Resolution and Future Steps

Importantly, discussions have begun between Circle and U.S. federal prosecutors about creating a new mechanism for compensating fraud victims. This proposed system would involve permanently freezing stolen tokens while issuing equivalent new assets for affected parties.
Concerns about Circle’s response aren’t new; allegations include delayed blocking actions during major hacks since 2022. For instance, following the Drift Protocol hack in April 2026, investors filed a lawsuit accusing Circle of not quickly freezing around $230 million in USDC transferred through inter-chain protocols from Solana to Ethereum.
In essence, while navigating regulatory pressures and technological challenges remains complex for stablecoin issuers like Circle in safeguarding crypto assets against fraudsters’ tactics evolving rapidly within blockchain environments globally—proactive measures ensuring user protection are ever crucial today across cryptocurrency landscapes worldwide.