Circle Internet Financial, the issuer of USD Coin (USDC), is facing a criminal complaint in Wisconsin after allegedly failing to comply with a court order to help return approximately 381,235 USDC belonging to the victim of an investment scam.

According to an investigation by the International Consortium of Investigative Journalists (ICIJ) published on July 8, 2026, law enforcement officials in Wisconsin and New York believe Circle failed to provide adequate assistance in multiple efforts to freeze and recover assets belonging to scam victims.

Circle denied the allegations, calling the complaint baseless. The company argued that it lacks the technical ability to reverse USDC held in third-party wallets and also questioned whether the Wisconsin court had jurisdiction to issue such an order.

Romance Scam Led to the Freezing of 381,235 USDC

The case began around May 2025, when a resident of Walworth County received a message from someone identifying herself as "Lenora." The scammer gradually built a relationship with the victim before persuading him to convert part of his savings into USDC.

The funds were then transferred to a fraudulent investment platform controlled by the scammers. Authorities classified the scheme as a combination of a romance scam and an investment scam, commonly known as a pig butchering scam.

According to the Walworth County Sheriff's Office, the victim reported losses of approximately US$460,000. The funds came from his retirement savings and the life insurance proceeds of his late wife.

Investigators from the Wisconsin Department of Financial Institutions traced a direct transfer of 381,235 USDC to a digital wallet. The entire balance reportedly remained in that same wallet when it was located.

In August 2025, the Walworth County Court ordered Circle to freeze the USDC. Circle promptly complied with the freeze request, preventing the assets from being moved from the identified wallet address.

However, the dispute escalated in December 2025, when the judge issued a follow-up order requiring Circle to facilitate the seizure of the assets. The company was instructed to disable the frozen USDC and issue an equivalent amount of newly minted tokens to a wallet controlled by the Walworth County Sheriff's Office.

After Circle stated it could not comply with the order, prosecutors filed a misdemeanor contempt charge against the company for allegedly failing to obey the court order. Authorities accused Circle of intentionally refusing, obstructing, or failing to execute the judicial directive.

Circle Says It Cannot Reverse and Reissue USDC

In its motion to dismiss the case, Circle argued that prosecutors had wrongly portrayed the company as intentionally defying the court.

Circle maintained that it has no access to the private keys of third-party wallets holding the assets. The company also said it lacks the technical capability to invalidate USDC held at external addresses and reissue the same amount to law enforcement authorities.

The official USDC terms state that transactions sent to third-party addresses are irreversible. Circle cannot reverse blockchain transactions that have already been finalized. However, the terms also state that Circle may be required to freeze USDC or surrender its reserve assets if served with a lawful order from a competent authority.

Circle further argued that the Wisconsin court lacks the necessary jurisdiction to compel the company to take such actions. In addition, Circle claimed prosecutors failed to engage with the company's efforts to discuss alternative mechanisms for compensating the victim.

"The tools available to us cannot keep pace with the tools used by criminals," said Walworth County District Attorney Thomas Binger.

According to Binger, cryptocurrencies allow criminals to move funds rapidly, making it significantly more difficult for investigators to identify those controlling the wallets.

Several experts have questioned Circle's claims regarding its technical limitations. Joshua Cooper-Duckett of Cryptoforensic Investigators argued that, in theory, Circle could update its token code to enable a burn-and-reissue mechanism for USDC.

In court filings, Circle also disclosed that it has reached a general agreement with federal prosecutors on a victim compensation mechanism. Under that framework, disputed USDC could be permanently frozen, while newly issued tokens of equivalent value would be distributed to victims. However, it remains unclear whether this approach will be applied in the Wisconsin case.

Case Could Define Stablecoin Issuers' Responsibilities

The dispute highlights the distinction between the ability to freeze assets and the obligation to restore their value to victims.

Freezing tokens merely prevents them from being transferred or redeemed. To actually return funds, a stablecoin issuer would need a mechanism to burn the frozen tokens, release the underlying reserves, or mint replacement tokens.

The ICIJ compared Circle's policy with that of Tether, the issuer of USDT. Tether reportedly has the ability to burn tokens held in wallets linked to illicit activity and reissue an equivalent amount to law enforcement agencies. The company said it has frozen approximately US$4.7 billion in assets connected to illegal activities and reissued around US$1.1 billion worth of tokens across various financial crime investigations.

Meanwhile, prosecutors in New York sent a letter to U.S. senators in January 2026 expressing similar concerns. They argued that Circle's policy requiring a court order before freezing assets could slow enforcement efforts, even though stablecoin transactions can settle within seconds.

Circle responded that its policy is intended to protect users from arbitrary or politically motivated intervention. Law enforcement officials, however, argue that lengthy legal procedures may allow stolen funds to be moved before court orders can be obtained.

There is currently no indication that the case has affected USDC's peg to the U.S. dollar. Nevertheless, the Wisconsin case could become an important legal precedent regarding the extent to which courts can require stablecoin issuers not only to freeze assets but also to restore their value to victims.

Ultimately, the dispute demonstrates that the irreversible nature of blockchain transactions does not entirely eliminate the role of centralized stablecoin issuers. Companies such as Circle still retain certain administrative controls, including the ability to blacklist wallet addresses. The legal debate now centers on whether those powers should also carry an obligation to provide asset recovery mechanisms for victims of fraud.