Circle Faces Wisconsin Complaint Over Refusal To Recover USDC

Circle Says Complaint Is Meritless

Circle called the complaint meritless in a motion to dismiss. The company cited two defenses: it said the Wisconsin court lacks jurisdiction, and it said prosecutors ignored alternative victim-compensation proposals Circle had offered.

Circle’s position is that its freeze-only approach protects users from arbitrary, wrongful or politically motivated asset seizures by requiring formal legal process before intervention. The company did not accept allegations that it improperly profits from frozen funds, and it has not admitted to that claim.

The dispute has become a test case for whether stablecoin issuers are only asset-freezing gatekeepers or whether courts can compel them to actively make victims whole by destroying stolen tokens and issuing replacements.

Walworth County prosecutor Thomas Binger said, “The tools that are at our disposal are not keeping up with the tools the criminals are using.” His comment captured the enforcement problem at the center of the case: scammers can move funds quickly, while courts and investigators must work through slower formal processes.

Milwaukee County detective Scott Simons said Circle either declined early freeze requests or court orders arrived too late in more than a dozen cases. His account pointed to a practical recovery gap for victims when stolen crypto is identified but cannot be converted back into usable funds.

The FBI logged a record $11.4 billion in crypto fraud losses for 2025. More than 18,500 victims lost over $100,000 each in crypto fraud during that year, underscoring the scale of the enforcement problem described by investigators.

New York prosecutors also criticized Circle’s policy, saying the company generally requires court orders before freezing USDC and has not consistently returned stolen funds after courts approved their release. A January letter to U.S. senators from New York prosecutors alleged that Circle continues earning interest on reserve assets backing frozen USDC.

Blockchain researcher Yury Serov estimated that at least 119 million USDC is currently frozen. Those tokens cannot move, but they remain backed by reserve assets unless another process permanently removes them.

Circle recently reached a preliminary agreement with federal prosecutors on a victim compensation mechanism involving permanently freezing tainted tokens and issuing replacement USDC. Circle has not clarified whether that federal mechanism would apply to the Walworth County case or to non-federal law enforcement requests more broadly.

Whether that proposed mechanism reaches Walworth County remains unresolved. One supplied account said the answer could determine whether the case leads to multiple misdemeanor charges.

Tether Comparison Highlights Policy Split

The Circle dispute has drawn comparisons with Tether, the issuer of USDT, because Tether has a more interventionist recovery model. Tether says its software can destroy or burn tokens held in criminal wallets and issue replacement tokens to law enforcement or victims.

Tether has said it sometimes acts before courts become involved when law enforcement requests assistance. That approach creates a faster but more discretionary recovery process, while Circle has emphasized formal legal process and a narrower freeze-only model.

Joshua Cooper-Duckett of Cryptoforensic Investigators said Circle could update its token code to permit burns and reissuance for tokens held in third-party wallets. Circle did not answer when asked whether it could make those smart contract changes.

Circle policy chief Dante Disparte acknowledged in April that tools for faster action exist, while arguing that the legal frameworks for faster action do not. That distinction places the dispute between technical capability and legal authority rather than only between competing stablecoin business models.

Circle was listed on the New York Stock Exchange in June 2025. The company’s careful approach has helped USDC gain ground in Europe under the EU’s Markets in Crypto-Assets regulation, while Tether has been characterized as an offshore issuer that has embraced discretionary cooperation partly to rebuild its compliance reputation.

The case now turns on three questions: whether stablecoin issuers must freeze funds, whether they must recover or reissue funds, and whether local courts have authority to compel smart-contract-level intervention. The first issue is largely settled here because Circle froze the stolen USDC after receiving the court order. The second and third issues remain unresolved because Circle rejected the order to burn or invalidate the stolen tokens and reissue replacement USDC.

The victim’s recovery problem was not that the stolen USDC could not be located. The problem was that frozen tokens still were not returned. The court wanted Circle to transform immobilized stolen funds into usable replacement USDC for law enforcement, while Circle sought to avoid or limit that role.

Circle did not immediately respond to a request for comment. The supplied information does not show Circle agreeing that it can currently burn and reissue third-party USDC on demand under the Wisconsin court order.