NY Attorney General James leads bipartisan push against the Clarity Act ahead of initial Senate vote

New York Attorney General Letitia James led a group of 17 bipartisan attorneys general urging lawmakers to vote against landmark cryptocurrency legislation, warning that the bill would imperil their ability to protect investors from fraud.

In a letter on Monday, a day ahead of a key procedural vote in Washington, James and others said that the Clarity Act would "muddy the waters" and make it harder for state prosecutors to go after scams and hold firms that break the law accountable.

"As written, the Clarity Act would embolden scammers and potentially strip attorneys general of our authority to protect our states’ investors and their wallets," James said in a statement. "Together with my attorney general colleagues, I urge Congress not to pass the Clarity Act."

The letter, sent to Senate Banking Committee Republican Chair Tim Scott and top Democrat Elizabeth Warren, comes at a pivotal moment as the full Senate is slated to take an initial procedural vote on the Clarity Act on Tuesday. On Sunday night, Senate Republicans released the latest version of the over 600-page bill, which included some of Democrats asks in a bid to secure the 60 votes needed to advance the legislation.

Among the changes, the latest version gives state attorneys general a role in enforcing conflict-of-interest rules for public officials. This had become a major sticking point among some Democrats given President Donald Trump's vast crypto wealth, which has grown to hundreds of millions of dollars linked to World Liberty Financial and his (TRUMP) memecoin. Earlier versions would have put the federal Justice Department in charge.

The revised bill also gives the Treasury secretary authority to impose an 18-month "circuit breaker" on stablecoin rewards if payment stablecoins trigger substantial deposit outflows from community banks. The provision is intended to give the Treasury secretary a temporary tool to limit the impact of large-scale withdrawals on smaller banks.

The legislation also changes the Blockchain Regulatory Certainty Act to narrow money-transmission registration for certain software developers and add a civil safe harbor, impose Agriculture Committee guardrails on affiliate trading and conflicts of interest, and clarify when or how state-level laws on consumer protection apply.

James and others say the bill would nevertheless allow the Securities and Exchange Commission to "preempt state registration authorities" and that the language in the Clarity Act is unclear and could lead to future challenges to states' ability to combat fraud.

"This unprecedented grant of authority would not only apply to digital assets but would also broadly grant unilateral discretion to SEC to reset the scope of federal preemption, potentially upending the state securities regulatory regime," the NYAG said.

James had previously urged Congress to tighten language in the Clarity Act and said it would weaken states' ability to police the industry. She had also urged lawmakers to add stronger anti-money-laundering and ethics safeguards.

State attorneys general from California, Illinois, Arizona, Kansas, Ohio, Wisconsin and others signed Monday's letter.