Criminal Complaint Against Circle Puts USDC Freeze Policy Under Scrutiny

A criminal complaint filed by Wisconsin prosecutors against Circle, the issuer of USDC, has brought renewed attention to a pressing question: Why does the world’s second-largest stablecoin issuer appear less willing than Tether to assist law enforcement in recovering stolen cryptocurrency?

An investigation by the International Consortium of Investigative Journalists (ICIJ), published on July 8, highlights three key issues fueling the debate. Circle maintains that it only freezes funds upon receiving valid legal orders, disputes assertions that it can simply burn and reissue stolen tokens, and rejects allegations from New York prosecutors that it profits by leaving frozen assets untouched. Critics, however, argue that this policy leaves scam victims waiting indefinitely as their funds vanish.

The case originated from a romance scam in Walworth County, Wisconsin. A resident, identified only as “Victim #1,” was persuaded to purchase USDC and send approximately 381,000 tokens to a fraudulent investment platform. After investigators traced the funds, a judge ordered Circle to freeze the associated wallet, which the company executed promptly.

Months later, the court ordered Circle to invalidate the frozen tokens and issue an equivalent amount of new USDC to the Walworth County Sheriff’s Office. Circle refused, stating it lacks the technical capability to burn and reissue USDC held within a third-party wallet. In response, prosecutors filed a criminal complaint—an unusual step against a company of Circle’s stature.

Circle subsequently petitioned the court to dismiss the case, arguing that the Wisconsin court lacked jurisdiction and that prosecutors overlooked alternative compensation proposals it had offered. Walworth County prosecutor Thomas Binger noted that the dispute illustrates how quickly scammers can move funds compared to the slower pace of the legal system.

ICIJ: Circle Faces Criminal Complaint in Wisconsin Over Refusal to Recover Scam Victim Funds
An ICIJ investigation reported that law enforcement authorities in Wisconsin and New York accused Circle of refusing to assist in freezing or recovering scam victims’ USDC. Wisconsin… pic.twitter.com/QZv7PNN0Du

— Wu Blockchain (@WuBlockchain) July 9, 2026

The Wisconsin case is not an isolated incident. Earlier this year, New York prosecutors informed U.S. senators that Circle typically requires court orders before freezing USDC and has not consistently returned stolen funds even after courts approved their release. Since stablecoin transfers settle within seconds, investigators argue that valuable time is often lost while legal paperwork is processed.

The Debate Over Frozen Funds

New York prosecutors also raised a more serious allegation: that Circle continues to earn interest on reserve assets backing frozen USDC, creating little financial incentive to return those funds quickly. Circle has not accepted this claim.

Blockchain researcher Yury Serov estimates that at least 119 million USDC is currently frozen. These tokens are immobilized but remain backed by reserve assets unless a specific process removes them permanently.

Circle’s technical explanation has also faced criticism. Joshua Cooper-Duckett of Cryptoforensic Investigators told the ICIJ that the company could update its smart contracts to support burning and reissuing tokens held in third-party wallets. When asked whether it could implement these changes, Circle did not provide a direct answer.

Court filings also revealed that Circle had discussed a victim compensation process with federal prosecutors involving the permanent freezing of stolen tokens before issuing replacement USDC. The company did not clarify whether this arrangement applies to cases outside the federal system.

Circle USDC vs. Tether’s Model and the 30x Gap

The disparity between Circle and Tether is stark. Data from AMLBot shows that Tether froze approximately $3.3 billion in USDT across more than 7,200 wallets between 2023 and 2025. In contrast, Circle froze about $109 million in USDC during the same period, representing a 30-fold difference in value.

A significant factor in this discrepancy is Tether’s burn and reissue mechanism. After freezing stolen USDT, Tether can destroy those tokens and issue clean replacements to law enforcement or victims.

Tether reports that it has reissued around $1.1 billion and frozen $4.7 billion linked to illicit activity. Circle does not currently offer a similar public process for third-party wallets, although its court filings indicate it has discussed comparable arrangements with federal authorities.

The two companies also differ in their operational thresholds. Tether states it sometimes acts before court involvement if law enforcement requests assistance. Circle, however, asserts it responds only through formal legal processes, arguing this approach protects users from wrongful or politically motivated freezes. Investigators counter that by the time such orders are issued, the stolen cryptocurrency is often already gone.

Milwaukee County detective Scott Simons told the ICIJ he has worked on more than a dozen cases where Circle either declined an early freeze request or where the court order arrived too late. For many victims, he said, the result is simply that the money is lost.

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