Attorney General James Urges Congress to Update Cryptocurrency Legislation to Protect Investors

NEW YORK – New York Attorney General Letitia James today sent a letter to congressional leaders urging them to strengthen pending cryptocurrency legislation to protect investors. The United States Senate recently passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which purports to legalize and regulate stablecoins. Stablecoins are a type of cryptocurrency that are pegged to another asset, such as the U.S. dollar, and are often prone to anonymous transactions that can be linked to criminal activity. Attorney General James warns that legalizing the issuance of stablecoins without substantial regulatory supervision puts the American public at risk. To protect investors, the economy, and national security, Attorney General James recommends that congressional leaders strengthen the GENIUS Act by regulating the issuers of stablecoins in a similar manner to banks, and offer insurance provided by the Federal Deposit Insurance Corporation (FDIC) on stablecoin deposits.

“Many people across the country invest millions of dollars in cryptocurrencies, yet our laws fail to protect them and their money from fraud,” said Attorney General James. “Unregulated cryptocurrency transactions are a danger to investors, the economy, and national security. Congress must pass legislation that strengthens oversight of cryptocurrency to help stop fraud and criminal activity and protect the American public.”

The U.S. Senate earlier this month passed the GENIUS Act and is also considering a parallel stablecoin bill called the Stablecoin Transparency and Accountability for a Better Ledger Economy Act (STABLE) Act. Attorney General James writes in her letter that neither piece of legislation contains the necessary guardrails to protect Americans from the risks of stablecoins. Stablecoin transactions are often anonymous and can sometimes be used by criminal gangs and terrorist organizations, jeopardizing national security. In her letter, Attorney General James explains that stablecoin legislation must require issuers to use digital identity technology in stablecoin purchases and transactions to protect national security, shield against scams, and prevent market manipulation. Attorney General James also urges Congress to maintain its support for community banks and resist efforts to undercut those institutions by allowing non-bank stablecoin issuers to proliferate.

To address the risks presented by the GENIUS and STABLE Acts, Attorney General James asks Congress to modify the legislation to:

• Regulate stablecoin issuers as banks;
• Require stronger supervision and capital requirements, allowing regulators to monitor and address risks in real time and decreasing pressure on banks and markets;
• Guarantee the ability for investors to redeem stablecoins on demand and protect deposits through FDIC insurance;
• Strengthen national security by requiring issuers to use digital identity credentials, reducing the risk of sanctions evasions, terrorist and illicit financing, money laundering, and other illegal activities;
• Onshore stablecoin issuers to protect national security, limiting the possibility of issuers moving offshore to evade U.S. oversight and enforcement of protections;
• Support community banks, recognizing that regulated financial institutions are vital financial lifelines for rural America and underserved communities, and that stablecoins can undermine the financial stability and access of those communities; and
• Preserve state prudential supervisory authority and strengthen state and federal law enforcement’s ability to combat fraud.

Attorney General James also provided a statement for the record to the U.S. House Financial Services Committee on the Digital Asset Market Clarity (CLARITY) Act, another piece of cryptocurrency legislation that aims to provide comprehensive regulation of digital assets. In her statement, Attorney General James notified Congress that the CLARITY Act protects the anonymity of bad actors, enables a rigged market, and fails to provide substantial regulatory guardrails to prevent and prosecute fraud. As part of her statement, Attorney General James also urged Congress not to interfere with and restrict state investor protection laws. 

This letter is the latest effort by Attorney General James to protect investors and strengthen regulations on cryptocurrency. In June, Attorney General James announced that her office had frozen $300,000 in cryptocurrency linked to scammers targeting Russian-speaking New Yorkers. In April, Attorney General James warned Congress that the lack of strong federal regulations on cryptocurrencies increases the risk of fraud, criminal activity, and financial instability, and risks our national security. In January, Attorney General James filed a lawsuit to recover $2.2 million worth of cryptocurrency held in digital wallets and stolen from New Yorkers and victims across the country in a remote job text scam. In June 2024, Attorney General James sued cryptocurrency trading company NovaTechFx for engaging in illegal pyramid schemes that defrauded hundreds of thousands of investors, including over 11,000 New Yorkers, of over a billion dollars’ worth of cryptocurrency. In May 2024, Attorney General James secured $2 billion for defrauded victims from the cryptocurrency company Genesis Global Capital.