Circle faces Wisconsin criminal complaint over 381,235 USDC recovery order

Circle Internet Financial remains under scrutiny over its handling of frozen USDC after authorities in Wisconsin and New York accused the company of delaying or refusing to help recover funds for fraud and hacking victims. The dispute centers on a Wisconsin case involving roughly 381,000 USDC linked to a romance-investment scam, where Circle complied with an order to freeze the wallet last August but is accused of refusing to comply with a December warrant directing it to facilitate seizure of the tokens. Walworth County prosecutor Thomas Binger filed a misdemeanor criminal complaint accusing Circle of failing to invalidate the frozen tokens and issue an equivalent amount of new USDC to a wallet controlled by the local sheriff's office. Circle called the complaint meritless, said prosecutors misunderstood its capabilities, and maintained that it freezes assets only when compelled through lawful process. The Wisconsin case has become part of a broader debate over how far stablecoin issuers can be required to go once stolen crypto is traced. New York prosecutors wrote to U.S. senators in January accusing Circle of declining freeze requests without a court order and of failing to return stolen stablecoins even after courts ordered it to do so. Critics, including blockchain researcher Yury Serov, say Circle also has a financial incentive to leave funds frozen because the reserves backing immobilized USDC continue to generate interest; Serov estimated frozen USDC at at least 119 million tokens. The latest filing also disclosed that Circle reached a general agreement with federal prosecutors on a mechanism under which flagged stablecoins could be permanently frozen and new tokens of equal value minted for victims. That approach would effectively mirror the burn-and-reissue process critics have said Circle should support, though it remains unclear whether it will be used in the Wisconsin case.