New York Attorney General Letitia James has urged Congress to rethink a core piece of the federal Clarity Act, warning in written testimony submitted Monday to the Senate Permanent Subcommittee on Investigations that the bill would strip states of their ability to police digital asset markets. James argued the legislation would "override state regulation of digital asset markets and shift oversight to the Commodity Futures Trading Commission," leaving state regulators with a diminished role in an area where they have historically taken the lead on fraud enforcement.
The warning comes as the bill itself remains stalled in the Senate, with leadership prioritizing other legislation ahead of the chamber's August recess and negotiators still working through unresolved provisions.
Scam Losses Driving the Pushback
James backed her objection with figures from her own office's casework, noting that crypto scam complaints have tripled over the past three years, with reported losses totaling nearly $500 million over five years. Those numbers, she argued, illustrate why state-level enforcement capacity needs to be preserved rather than consolidated under a single federal regulator.
To address the underlying fraud problem directly, James called for platforms to be required to comply with anti-money laundering, know-your-customer, and cybersecurity standards, along with active surveillance for suspicious activity and market manipulation. She also pushed for platforms to be made "financially liable when they fail to protect customers from fraud," and for a prohibition on converting mixer-linked or otherwise untraceable crypto into US dollars.
What James Wants Preserved or Added
Beyond her criticism of the CFTC handoff, James asked lawmakers to preserve existing state money transmission, commodities, and securities laws rather than preempting them outright. She further recommended barring elected officials and recently departed government officials with crypto financial interests from having a hand in regulating the industry, a provision that echoes the ethics-related sticking point already holding up the bill's progress in the Senate.
Her testimony adds a state-level voice to a debate that has largely played out between federal regulators and industry lobbyists, and signals that even if the Clarity Act eventually clears the Senate, attorneys general in states with significant enforcement records may continue pushing back on how much authority the bill hands to Washington.
