NY AG warns CLARITY Act strips state powers as losses hit $11.4B

New York Attorney General Letitia James urged Congress to reject the Digital Asset Market Clarity Act, arguing the bill would strip state regulators of enforcement power as crypto scam losses reached $11.4 billion in 2025, according to FBI data.

"State and local law enforcement agencies are 99 percent of all US law enforcement bodies, handling roughly 99.5 percent of criminal cases and 98.8 percent of arrests," James said in written testimony submitted July 27 to the Senate Permanent Subcommittee on Investigations. "This bill would neuter their ability to crack down on rampant fraud in crypto markets."

The bill, which the House passed 294-134 in July, would hand most crypto rulemaking to the Commodity Futures Trading Commission and override state investor protection laws. James's office reported nearly $500 million in crypto scam complaints over five years, with losses almost tripling in three years. The average victim lost $62,604, per the FBI. TRM Labs estimated $158 billion in illicit crypto volume in 2025, up about 145 percent from 2024.

The legislation faces an uncertain path in the Senate. Majority Leader John Thune said July 23 that votes are missing, and at least seven Democratic senators have signaled opposition over the bill's ethics provisions, which would let the president park existing crypto businesses in a blind trust and delay enforcement for one year. The bill needs seven Democratic votes to pass.

The Enforcement Gap

The push to centralize crypto oversight comes as federal enforcement has pulled back. The Justice Department told prosecutors in April 2025 to stop charging platforms for user conduct and shut down its crypto enforcement team. The SEC closed more than 1,000 investigations in 2025 and dropped seven crypto cases, five of which had already produced judicial findings of violations.

James pointed to cases her office has pursued: one scam operated through Haitian church prayer groups; another used Facebook ads targeting Russian speakers before routing funds to Vietnam. Her office recovered $2 billion from Genesis and $50 million from Gemini.

The Ethics Fight

The bill's ethics provision — negotiated with the White House — bars public officials from issuing or sponsoring digital assets but allows the president to place existing crypto businesses in a blind trust. The ban would not take effect for one year after enactment and would sunset on Jan. 20, 2029, the final day of Trump's second term. The Department of Justice would have sole enforcement authority, excluding state attorneys general.

Trump's financial disclosures show he made more than $1 billion in crypto-related income in 2025. His family's World Liberty Financial founded USD1, a stablecoin of which Binance holds 87 percent, according to Forbes and the New York Times.

Sen. Elizabeth Warren called the bill "dead on arrival," arguing it "does nothing to prevent him from vacuuming up" more profits. Sen. Angela Alsobrooks said DOJ-only enforcement is "wild and unserious and stone crazy right now, given what we have seen from them."

Sen. Cynthia Lummis, the bill's lead sponsor, expressed frustration, telling Fox Business that Trump "subjected himself and Melania Trump to the most restrictive ethics language that a president has ever subjected himself to."

Coinbase chief policy officer Faryar Shirzad has pushed for a vote as early as Aug. 3, arguing the question is whether Washington or Beijing writes the rules for the next financial system. Goldman Sachs CEO David Solomon backs the bill despite calling it flawed; JPMorgan's Jamie Dimon opposes it.

The National Sheriffs' Association wrote to the Senate on May 13 opposing Section 604, which would exempt crypto mixers from money transmitter rules. State securities regulators also urged a no vote.

This article is for informational purposes only and does not constitute investment advice.