New York Attorney General Letitia James has formally opposed the Digital Asset Market Clarity Act, arguing that the bill would gut state fraud cases and leave scam victims with nowhere to turn. James sent her case to a Senate investigations panel on Monday, specifically targeting the bill's provision that would override state investor protection laws and hand most crypto rulemaking to the Commodity Futures Trading Commission (CFTC). Her office polices securities and commodities for 20 million New Yorkers, and she warns that taking away that power would leave scam victims without their closest law enforcement agency. The House already passed the bill in July 2025 with a vote of 294 to 134, and it cleared a key Senate committee in May, but James's opposition now threatens the legislation's prospects. James has asked Congress to add stronger investor protection, anti-money-laundering and ethics safeguards to the legislation, challenging the current enforcement framework that would restrict state authorities.
Crypto scam losses have reached unprecedented levels in 2025, with multiple datasets showing alarming growth across the sector. According to James's testimony, FBI Internet Crime Complaint Center reported $11.4 billion in losses, up 22% from 2024, while FTC Consumer Sentinel Network recorded $1.78 billion in losses, up 25.6%. TRM Labs estimates illicit crypto volume at $158 billion, representing a 145% increase, and New York complaints alone total nearly $500 million over five years, almost tripling in three years. The average victim reported losing $62,604, with crypto complaints to the FBI rising 21% in a year. James cites specific cases including scams through Haitian church prayer groups and Facebook ads targeting Russian speakers, demonstrating the diverse methods used by crypto criminals.
State and local agencies currently handle 98.8% of criminal cases and 98.8% of arrests, while federal authorities handle only 1.2% of cases, making James's opposition particularly significant. The Justice Department told prosecutors in April 2025 to stop charging platforms for what their users do and shut down its crypto enforcement team. The SEC closed more than 1,000 investigations in 2025 and dropped seven crypto cases, with judges having already found violations in five of them. James argues that Washington has pulled back while state and local agencies are 99% of all US law enforcement bodies, making the federal takeover particularly problematic for enforcement capabilities. Some Democratic senators have objected to giving the Department of Justice sole responsibility for enforcing provisions that restrict digital asset activities by public officials, wanting state prosecutors to share that authority rather than relying entirely on federal enforcement.
The Bank Policy Institute (BPI) has officially opposed the newly released CLARITY Act draft, flagging continued gaps on key issues that need strengthening. In a statement released on Thursday, July 23rd, the banking trade group specifically criticized the bill's 'shortcomings on stablecoin yield and illicit finance provisions that should be strengthened.' The banking industry has been opposed to the earlier stablecoin yield compromise that only allowed incentives based on account activity, with the latest CLARITY Act draft still including stablecoin yield provisions that permit third-party crypto firms to pay activity-based rewards. However, Republican senators John Curtis and John Cornyn have shared banks' concerns about deposit flight, according to Punchbowl News, with the compromise now captured in Section 404 of the new draft. Market expectations for the bill's passage in 2026 have dropped to 32% on Friday, reflecting growing skepticism about the legislation's prospects. Thune told reporters that lobbying by banking groups over provisions allowing crypto platforms to offer stablecoin yield was affecting the talks, with banks arguing that yield-bearing stablecoin products could pull deposits away from traditional financial institutions.
The legislation faces an urgent timeline constraint with only two weeks remaining before the Senate breaks for the August recess on August 7th. Majority Leader John Thune is considering starting the floor process before lawmakers leave Washington for the August recess, even though passage before the break appears unlikely. The process could begin with Thune filing cloture on a motion to proceed, with at least 60 senators needed to advance. If cloture succeeds, the Senate could debate the motion for up to 30 hours before voting on whether to formally take up the bill. Republicans hold 53 seats and therefore need Democratic support even if the party remains largely united, with Senator Mitch McConnell expected to remain absent, while Republican Senators Josh Hawley and Rand Paul have not confirmed whether they would support the measure. Both Hawley and Paul opposed the GENIUS Act during its initial Senate procedural vote in 2025, increasing uncertainty over how many Democratic votes Republicans may ultimately need. For Witt, the new ethics provision addresses Democrats' concerns, with the White House official noting that 'Nobody thought that we could actually produce an ethics provision that had real teeth, and that included the President.' However, most analysts had warned that if the bill is not passed by August, it will be as good as dead, making the upcoming two weeks critical for the legislation's prospects.
