Circle Freezes But Won't Burn: USDC Policy Leaves Cops Holding the Bag 🥶

A Wisconsin criminal complaint against Circle has reignited a debate over why the world's second-largest stablecoin issuer takes a markedly different approach to helping law enforcement recover stolen funds than its rival Tether. An ICIJ investigation published on July 8 outlines three flashpoints in the dispute, centered on Circle's stated practice of freezing wallets only after receiving valid legal orders, its refusal to burn and reissue tokens already frozen, and New York prosecutors' allegation that Circle profits by leaving frozen assets on its books. Circle disputes each of those characterizations.

The underlying case originated in a romance scam reported in Walworth County, Wisconsin. A resident identified as "Victim #1" was persuaded to purchase roughly 381,000 USDC and transfer the tokens to what investigators later determined was a fraudulent investment platform. After tracing the funds, a judge ordered Circle to freeze the receiving wallet, a directive the company complied with without delay, according to the complaint.

Months later, the court issued a follow-up order directing Circle to invalidate the frozen USDC and reissue an equivalent amount to the Walworth County Sheriff's Office. Circle declined, asserting that it does not have the technical capability to burn and reissue USDC held in a third-party wallet. Prosecutors responded by filing the criminal complaint, which now puts that position under formal legal scrutiny.

The dispute highlights a structural contrast in how the two largest stablecoin issuers cooperate with U.S. law enforcement. Tether, the issuer of USDT, has a documented record of working with authorities to freeze and, in several high-profile cases, reassign stolen or sanctioned assets, while Circle has consistently maintained a narrower interpretation of its obligations, acting only on binding court orders and declining additional steps that would alter token supply beyond its standard issuance and redemption process. Critics cited in the ICIJ report argue that this narrower posture leaves victims waiting while funds remain effectively locked but legally out of reach.

Circle has not been charged with any crime in connection with the Wisconsin matter, and the company continues to assert that its freeze policy is consistent with its regulatory commitments and the technical design of USDC. The case remains active in Walworth County, and the complaint does not yet specify a court date for further proceedings.