New York Attorney General Letitia James and 16 other state attorneys general are urging the Senate to reject the Clarity Act before a procedural vote expected Tuesday, arguing that the latest version of the cryptocurrency market-structure bill could weaken states’ ability to prosecute fraud and police misconduct by digital-asset firms.
In a letter sent Monday to Senate Banking Committee Chair Tim Scott and ranking member Elizabeth Warren, the bipartisan group said parts of the legislation could preempt state registration rules and invite court fights over whether state authorities can bring enforcement actions involving cryptocurrency scams. The attorneys general warned that states could lose practical tools used to investigate companies operating within their borders and seek restitution for consumers.
The intervention places state enforcement powers at the center of the Senate’s debate over the more than 600-page bill, rather than limiting the dispute to the familiar question of whether the Securities and Exchange Commission or Commodity Futures Trading Commission would oversee particular tokens and trading venues.
State officials challenge federal preemption language
The letter argues that the Clarity Act’s treatment of federal and state authority could allow the SEC to override state registration requirements. State attorneys general frequently use securities, consumer-protection and unfair-business-practices laws alongside federal agencies when pursuing alleged fraud.
James and her colleagues said the bill’s wording could make enforcement less certain even if Congress does not explicitly bar all state cases. A company facing a state lawsuit could argue that federal law supersedes the claim, forcing state authorities to litigate jurisdiction before reaching the alleged misconduct itself.
That concern reflects a long-running divide in financial regulation. Federal standards can give nationally operating firms a more consistent rulebook, but state officials contend that broad preemption can leave gaps when federal agencies lack the resources, legal authority or appetite to pursue every case.
The signatories include attorneys general from California, Illinois, Arizona, Kansas, Ohio and Wisconsin, among other states. Their coalition crosses party lines, though James has been among the most prominent Democratic state officials calling for tougher safeguards in cryptocurrency legislation.
James previously urged lawmakers to strengthen the bill’s anti-money-laundering provisions and ethics rules. Her latest letter also raises concerns about public officials’ financial conflicts in an industry where policy decisions can directly affect token issuers, stablecoin businesses and trading platforms.
Revised bill adds ethics and banking provisions
Senate Republicans released the newest draft Sunday night as they sought language capable of attracting the 60 votes needed to move the measure through an initial procedural hurdle.
One revision would give state attorneys general a role in enforcing conflict-of-interest provisions covering public officials. Earlier versions assigned that responsibility to the U.S. Justice Department. The adjustment appears designed to address Democratic criticism surrounding President Donald Trump’s cryptocurrency-related business interests, including World Liberty Financial and the TRUMP memecoin.
The inclusion of state attorneys general in one ethics provision does not resolve their broader objection to the bill’s treatment of state enforcement. Their letter argues that a limited enforcement role in a specific area would not compensate for language that could narrow states’ authority in fraud and registration cases.
The revised package also adds a temporary Treasury Department tool aimed at payment stablecoins. Under the proposal, the Treasury secretary could impose an 18-month “circuit breaker” on stablecoin rewards if payment-stablecoin activity contributes to deposit outflows from community banks.
Stablecoin rewards generally refer to incentives paid to holders, often resembling yield or loyalty benefits. Community banks have warned that stablecoins offering such rewards could encourage depositors to move funds away from traditional bank accounts, potentially reducing a bank’s funding base for local lending. The proposed mechanism is tied to defined bank-withdrawal conditions rather than a permanent ban.
Software developers receive narrower registration rules
The bill also revises the Blockchain Regulatory Certainty Act, narrowing money-transmission registration requirements for certain software developers and adding a civil safe harbor. Supporters of those changes have argued that developers who write or maintain non-custodial software should not automatically be treated as financial intermediaries when they do not control customer assets.
That distinction has become contentious after enforcement actions and criminal cases involving crypto-related tools. Developers and digital-rights advocates say overly broad money-transmission rules can place legal risk on people who publish code. Law-enforcement officials and consumer advocates have countered that software can also facilitate concealment of stolen or illicit funds.
Additional provisions from the Senate Agriculture Committee would establish guardrails on affiliate trading and conflicts of interest. The draft also seeks to clarify when state consumer-protection laws remain applicable, an area that is likely to draw close scrutiny from the state officials opposing the measure.
The Senate vote will test whether the revisions have narrowed divisions sufficiently to advance the bill. Passage of the procedural motion would not enact the Clarity Act, but it would open the way for Senate consideration and amendments. Failure would leave the legislation without a clear route forward in its current form.
For the attorneys general, the immediate objective is to preserve state authority before the bill reaches that stage. Their letter frames the proposed federal framework as one that should set standards for cryptocurrency markets without limiting the ability of state prosecutors to pursue fraud claims when local residents or businesses are affected.
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