Court Orders Seizure, Circle Refuses to Comply: A Tug-of-War Heading to Criminal Court

By: Jon Reiter

Compiled by: Saoirse, Foresight News

Circle is currently facing criminal prosecution in Wisconsin. The cause is an investment fraud case, with relevant charges stating: "Circle Internet Financial LLC refused to transfer the corresponding fiat currency reserves," and "refused to comply with the asset seizure order issued by the Circuit Court judge."

Law enforcement obtained a legal seizure order, but Circle refused to execute it. Circle insists it lacks the capability to execute; the government is prosecuting Circle on grounds of intentional refusal to cooperate. Setting aside the claims from all parties, everyone confirms one thing: Circle has not implemented this seizure order to date.

In past reports, we have often dug up numerous contrasting and thought-provoking contradictory details from companies' public messaging and legal settlement records settled years later. Most cases follow the same pattern: companies operate in violation of regulations while solemnly stating externally that they will never cross the red line; lies and violations coexist, yet the truth remains sealed for years before being made public. But this Circle case breaks this lag; we can verify the authenticity of Circle's statements item by item directly amidst the current confrontation between the enterprise and the government. The International Consortium of Investigative Journalists (ICIJ) followed up on this matter, but in our view, that report was too lenient towards Circle.

Background

Tether has long cooperated with law enforcement to complete fund seizures. Tether has the right to destroy USDT at any address without user knowledge or authorization, and issue an equivalent amount of new tokens to a wallet designated by law enforcement. Theoretically, Tether could also reverse this to recover tokens from law enforcement accounts, though such operations have not occurred to date. Tether has held these permissions for many years, with no controversy within the industry.

Circle's situation is different: the current USDC smart contract itself does not have built-in seizure transfer functionality. Both Tether and Circle can add wallet addresses to a blacklist and freeze assets, locking funds in the original address so they cannot be used; Circle routinely only freezes addresses and cannot directly seize and transfer tokens. This is also the statement Circle gave to the Waukesha County Circuit Court:

Beyond the permission to blacklist wallet addresses, Circle cannot control USDC within third-party wallets, lacks the ability to invalidate or reissue this portion of USDC, and cannot complete transfers.

The core of this statement is two points: "no control permission" + "no operational capability"; Circle uses a coordinating conjunction, claiming both statements are true. As long as Circle has any feasible way to invalidate tokens, it equates to making a false statement to the court. Once tokens can be invalidated, reissuing tokens is itself a routine minting operation, presenting no technical barrier. Therefore, the key to the whole matter is: Can Circle actually invalidate USDC within the address designated by law enforcement?

Actual Permissions Held by Circle

At this stage, existing contracts cannot directly invalidate USDC or seize funds. But Circle can fully upgrade the USDC smart contract to autonomously add any required functionality. Execution path required by the court:

• Directly seize the funds involved in the case

Compliance path Circle can implement:

• Upgrade USDC contract, add seizure functionality
• Execute fund seizure

The fund recovery process described by Circle to law enforcement is as follows (quoted from Circle court filed documents):

Circle explained to Detective Kuchta: 1. The wallet address is not custodied on the Circle platform; 2. Circle does not have the private key for this address; 3. Therefore Circle cannot transfer USDC out of the wallet; 4. If law enforcement wants to help victims recover funds, they must find the private key for this address themselves.

Asking police to find the private key themselves is essentially Circle being tough and refusing to cooperate. Plainly speaking, Circle's logic of action is most likely:

1. Facing criminal charges due to refusal to cooperate
2. Complaining that implementing seizure would add burden to themselves
3. Upgrading the contract to add seizure functionality only when absolutely unable to withstand pressure

It is known in the industry that Circle has the ability to upgrade the USDC contract; the court will most likely include this technical permission in the trial, with the judge ruling on liability. Circle's user agreement grants the enterprise great autonomy, almost allowing it to restrict user access to services at any time for any reason; relevant content is written in the "Acceptable Use Policy," where the agreement states:

Note: The following list of restrictions is not exhaustive; Circle may autonomously decide to modify all terms without notice.

This agreement covers all categories of services across multiple entities under Circle, including custodial accounts, API interfaces, payment card issuance, wealth management products, etc. The broad expression of "including but not limited to" in the agreement is sufficient to support Circle upgrading the contract to comply with court orders. The essence of this case is that the court issued an instruction, and Circle refused to execute it. Even if some feel broadly interpreting clauses is slightly far-fetched, deliberately misinterpreting rules to evade judicial orders is itself a serious problem. It is precisely Circle's insistence on narrow interpretation that ultimately brought criminal charges and continues to hinder court execution. Conversely, if this flexible clause were used to cooperate with the case, it would absolutely not incur court dissatisfaction.

Circle's Terms of Service Contradict Actual Behavior

Various official Circle documents state in advance that the enterprise may receive court asset freeze instructions. The "Access Restriction Policy" fully stipulates the asset freeze framework; USDC official terms specifically set up a "Banned Addresses and Forfeited Funds" chapter, stating clearly:

If receiving legal judicial documents issued by formal government agencies, Circle is obligated to freeze USDC, or transfer the corresponding USD reserves within segregated accounts.

The clause has anticipated that the court will require transferring USD to designated accounts; the chapter title directly includes "Forfeited." The details of the court seizure order disclosed by the Wisconsin government fully fit the clause scenario:

The court seizure order requires Circle to assist in seizing Victim 1's USDC, invalidating this batch of tokens to make them completely worthless; simultaneously requiring Circle to issue new USDC worth approximately $381,000 to compensate victims, transferring the new tokens to the Waukesha County Sheriff's Office wallet. This operation is known in the industry as "Burn and Reissue."

"Assist in seizure" is a broad instruction; the court did not limit specific operational methods, only requiring Circle to find a way to implement it. But the logic of Circle's response is strange. Circle repeatedly emphasizes it lacks operational capability; the government supplemented more dialogue details:

In subsequent communications between both parties, Circle stated: This batch of frozen USDC cannot be redeemed, but the company has already retained fiat currency reserves worth $381,000 as corresponding collateral. Circle raised an objection: If issuing new USDC equivalent to $381,000, the company must additionally retain $381,000 in reserves as collateral; double reserving reserves is unfair to the enterprise. Circle also claimed that, according to its own contract agreements, it cannot execute USDC burn and reissue.

This logic has obvious loopholes. Only by defaulting that Circle will absolutely not upgrade the contract does double reserve become the so-called "necessary cost"; Circle deliberately packages itself as the victim. Outsiders speculate that Circle does this to long-term hold the $381,000 reserves involved in the case and continue earning interest.

In other words, Circle's protest is built on the premise of refusing to upgrade the contract. Wisconsin government documents confirm this: Circle insists contract rules prohibit burn and reissue. But multiple searches reveal that the Circle official website never appears with words related to "reissue." USDC risk disclosures also have a forfeited funds chapter, with contradictory statements. If the "contract" in Circle's mouth specifically refers to the currently running smart contract, literally there is indeed no reissue permission, but this contract itself supports Circle autonomously modifying it.

Outsiders judge Circle is intentionally delaying, earning interest by long-term freezing of funds involved in the case; earning interest by occupying the principal involved has become its implicit demand.

Logical Analysis at the Contract Level

The vast majority of commercial contracts stipulate that clauses can be adjusted according to commercial reasonableness principles under special circumstances. Partners changing office addresses, opening banks, pricing reference indices are common changes; contracts do not directly become void due to this, and the performing party needs to adjust reasonably accordingly. All industries have such general rules; when resorting to court, judges will also require all parties to adopt reasonable solutions.

The logic of this Circle event should have been very simple: agreement clauses allow cooperation with judicial execution, and the enterprise has clear and feasible operational steps, but Circle insists on interpreting the contract in an extremely narrow, self-serving way, deliberately fabricating losses that would occur from cooperating with the case, thereby complaining of injustice. Documents submitted by Circle to the court clearly expose this line of thinking:

The only content in the indictment accusing Circle of intentionally resisting the law is "Circle refused to invalidate stolen USDC, refused to issue new tokens" (Indictment Paragraph 9). But the indictment distorts the communication facts. Circle did not refuse to invalidate tokens, only stating it "does not hold the private key for this wallet address." Comparing the indictment with Evidence Attachment 6 confirms: Circle merely lacks the tool to currently invalidate tokens in blacklisted wallets, rather than intentionally defying the seizure order.

The court instruction is "Assist in seizing funds." Circle argues it merely lacks a ready-made "seizure button," but deliberately avoids: it could fully upgrade the contract to add this function, but actively refuses to upgrade.

Circle using "no private key for the address involved" as a reason belongs to logical substitution. Circle indeed does not have the fraudster's user private key, but private keys capable of mobilizing funds are divided into two categories. In the context of this case, "private key" essentially refers to fund control rights; Circle holds contract upgrade permissions, equivalent to mastering another set of control rights that can transfer and invalidate tokens. USDC and USDT are not completely decentralized bearer assets; issuers always control a large amount of underlying permissions.

Even forcing the interpretation of documents from the strictest narrow technical perspective, Circle is still full of lies. It claims it cannot invalidate, reissue, or transfer third-party USDC, but upgrading the contract can achieve all of this. This lie derives a series of false claims:

1. Newly issued USDC must store an additional $381,000 in reserves: False. As long as the contract destruction function is enabled, invalidating old tokens can release the original reserves, no need for double collateral; Circle could even directly mark the address illegal, completely ignoring old tokens.
2. Contract prohibits burning and reissuing USDC: False. This is merely an internal policy Circle can unilaterally modify; clinging to a policy resisting court orders and refusing to execute is precisely the core of this criminal charge.
3. Unable to control USDC in third-party wallets: False. Relying on contract upgrade capabilities, Circle possesses controllable permissions.
4. No ability to invalidate tokens: False, contract upgrade can achieve this.
5. Unable to reissue or transfer tokens: False, contract upgrade can achieve this.

Whether interpreting broadly or nitpicking narrowly, Circle has not stated the truth. Unless Circle long ago lost contract upgrade capabilities (if true, this belongs to a major hidden accident, no relevant records in the file), otherwise the enterprise's statements throughout are untenable. To date, court files have no clues proving Circle lost contract modification rights.

Circle's So-Called Principled Resistance

Even stranger, Circle's agreement states the enterprise has the right to refuse unreasonable judicial instructions, but this rule does not apply to this event. The "Access Restriction Policy" states:

If Circle determines that a certain address ban instruction will threaten stablecoin security, or is itself unreasonable, Circle reserves all rights to object.

This clause only protects Circle's rights and interests; USDC holders cannot benefit from it. Theoretically, this rule allows Circle to legally defend against judicial instructions without worrying about shareholder accountability. The US judicial system belongs to an adversarial system; Circle has the right to raise objections and appeal defenses against government claims according to law, but does not have the right to directly refuse execution after the judge issues a final order.

Outsiders guess Circle judges any instruction that would reduce interest income as unreasonable. There exists a corporate mindset that is logically absurd but fits business logic: long-term locking of frozen assets and maximizing shareholder returns is the enterprise's fiduciary duty to shareholders; victims are not shareholders, so the enterprise does not need to prioritize them. No enterprise will state this thinking plainly, but listed companies need to be responsible to shareholders, while also must comply with court judgments, cannot openly defy judges.

The seizure order in this case was first issued in August 2025, and the court issued supplementary seizure documents multiple times. Circle transmitted false statements to Wisconsin regulators for months, and the government formally filed criminal prosecution in April 2026. After multiple rounds of communication, Circle has passed the normal objection stage, directly refusing to execute the judgment, and negotiations have completely stalled.

Some believe law enforcement filed prosecution hastily, appearing slightly aggressive. But it is hard to believe Circle will voluntarily concede; there is no turning point in negotiations. Circle insists firmly that it is completely impossible at the technical level; this statement is full of loopholes, unless Circle has other undisclosed hidden circumstances. To restart negotiations, either Circle admits lying, or law enforcement abandons the seizure claim; currently there is no feasibility.

If the court required Circle to seize USDT, we could understand Circle's inability. Circle is not omnipotent; there are indeed many things it cannot operate in the Web3 field. Law enforcement agencies indeed may issue orders that are objectively unimplementable, like a court cannot force a witness to guarantee they will not pass away before the trial. But this case is different; the operation required by the court Circle can fully achieve.

This article makes two major predictions: First, Circle will ultimately compromise and cooperate with execution; Second, subsequently Circle will attribute the lies to miscommunication between legal and technical teams, and the court will most likely not accept this excuse. We are even curious if Circle will bring out the statement of "prioritize responsibility to shareholders, victims have no priority." A US listed enterprise openly lying on a large scale during judicial confrontation is very abnormal. We previously long predicted that subsequently Circle would let legal shift the blame to the technical team.