New York AG Letitia James Cautions The CLARITY Act Risks Diluting States’ Power To Prosecute Crypto Fraud Amid Rising Pressure
New York Attorney General Letitia James has voiced strong concerns about the Digital Asset Market Clarity Act, commonly known as the CLARITY Act, arguing that the federal proposal risks weakening the capacity of states to combat cryptocurrency-related fraud and protect investors.
In written testimony submitted to the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations on July 27, 2026, James urged lawmakers to strengthen the bill’s safeguards rather than advance it in its current form.
James highlighted that the legislation would transfer primary oversight of digital assets to the Commodity Futures Trading Commission while overriding key elements of state regulation of digital markets.
She contended that this approach would interfere with and preempt state investor protection laws, thereby diminishing authorities’ ability to pursue fraud cases effectively.
“This is a mistake,” she stated, emphasizing that state and local law enforcement agencies perform the vast majority of policing and prosecutorial work nationwide.
These agencies account for the overwhelming share of arrests and criminal prosecutions, making any reduction in their tools particularly consequential for addressing misconduct in the crypto sector.
New York has long positioned itself as a leader in crypto oversight, with the Attorney General’s office actively pursuing enforcement against platforms that fail to safeguard consumers.
James pointed to a sharp rise in complaints: reports of cryptocurrency scams to her office have nearly tripled over the past three years.
Losses reported in New York alone approached half a billion dollars over five years, while broader investor losses from company collapses and various schemes have reached into the billions.
The office has secured significant recoveries and penalties through actions against entities involved in misleading practices, unregistered operations, and other violations.
Beyond jurisdictional issues, James called for enhanced anti-money-laundering requirements, know-your-customer protocols, and cybersecurity standards for crypto platforms.
She advocated prohibiting the conversion of untraceable assets—such as those processed through mixers—into US dollars, requiring platforms to monitor for suspicious activity and market manipulation, and holding intermediaries financially accountable when they fail to protect users from scams, drawing parallels to existing consumer protection frameworks.
She also stressed the need for greater transparency to support democratic integrity, noting that anonymous transactions complicate verification of officials’ financial disclosures, detection of potential bribes, and enforcement of conflict-of-interest and emoluments rules.
James recommended barring current and recent government officials from regulatory roles involving an industry in which they might hold personal financial interests.
The testimony arrives amid efforts in Congress to advance the first comprehensive federal framework for crypto market structure, with lawmakers seeking a Senate floor vote.
Supporters of the CLARITY Act argue it would provide needed regulatory clarity to foster innovation while incorporating certain fraud and anti-money-laundering measures.
Critics, including James, maintain that federal preemption could leave gaps precisely where state authorities have demonstrated effectiveness in protecting residents. As the legislative window narrows before the congressional recess, the debate underscores ongoing tensions between establishing uniform national rules and preserving robust local enforcement tools against a sector marked by rapid growth and persistent risks of illicit activity.
