Circle Faces Criminal Complaint Over Alleged Refusal to Recover Stolen USDC

Circle Internet Financial is facing a criminal complaint in Wisconsin after prosecutors accused the USDC issuer of failing to comply with a court order tied to stolen stablecoin funds. The case, detailed in an ICIJ investigation, stems from a Walworth County investment fraud probe involving more than 381,000 USDC. Authorities traced the funds to a wallet linked to scammers and obtained court orders to freeze and seize the assets.

Circle froze the targeted tokens, but the dispute escalated when prosecutors sought to recover the value for victim restitution. Circle has denied wrongdoing and called the complaint meritless, arguing that it could not recover USDC from a third-party wallet and that the Wisconsin order raised technical and jurisdictional issues.

Wisconsin Case Moves From Freeze Order to Legal Fight

The Walworth County Sheriff’s Office said investigators traced USDC connected to investment fraud cases and obtained court-authorized seizure warrants. In its official release, the sheriff’s office said the Walworth County District Attorney’s Office filed a criminal complaint against Circle Internet Financial LLC for “Contempt of Court – Disobey Order.”

The key issue is not the initial freeze. Circle complied with that step. The dispute is whether Circle must help make the frozen value available for restitution after a court order. The sheriff’s office said the case was also intended to challenge existing industry standards around recovering stolen digital assets. It also noted that a criminal charge is only an accusation and that the defendant is presumed innocent unless proven guilty.

Circle Says Recovery Demand Exceeds Its Ability

Circle’s position is that it can freeze USDC when legally required, but it cannot take tokens from a wallet it does not control. That defense matches Circle’s broader public stance on asset freezes. In an April 2026 policy statement, Circle said USDC freezes are not made unilaterally or arbitrarily, but are carried out only when legally compelled by an appropriate authority.

The dispute also follows earlier scrutiny over Circle’s blacklist powers, including a separate U.S. civil case in which 16 active USDC business hot wallets were frozen. That incident raised industry concerns over how centralized stablecoin controls can affect operational wallets when legal or compliance actions are applied.

Circle’s USDC terms also say the company may be required to freeze USDC or surrender associated U.S. dollars held in segregated accounts when it receives a legal order. That language adds an important layer to the case: Circle accepts that legal orders can trigger compliance action, but the Wisconsin dispute centers on how far that obligation extends.

Stablecoin Recovery Question Grows Larger

The complaint comes as U.S. authorities continue to target large crypto investment scam networks. In April 2026, the Justice Department said its Scam Center Strike Force had restrained more than $700 million in cryptocurrency and seized hundreds of scam-related websites and channels.

For victims, the Circle case raises a practical question. Freezing stolen stablecoins can stop scammers from moving the funds, but it does not automatically return money to the person who lost it. For prosecutors, the case tests whether a centralized stablecoin issuer should do more once stolen funds are identified and frozen. For Circle, the case raises legal and technical concerns over whether recovery demands can go beyond the design of its token controls.

The case also lands as Circle is defending USDC’s position in a more competitive stablecoin market. CEO Jeremy Allaire recently argued that USDC’s long-running network of integrations, liquidity, compliance systems and banking infrastructure gives it advantages that new stablecoin projects may struggle to match. The Wisconsin complaint has not been decided, and Circle has not been found guilty. But the case could shape how stablecoin issuers respond when courts order action on scam-linked tokens.