NY Attorney General James tells Senate the CLARITY Act would 'dilute' states' power to prosecute crypto fraud

New York Attorney General Letitia James urged Congress to tighten the digital-asset market bill moving through the Senate, warning in written testimony on Monday that it would strip states of powers they have used to police crypto for more than a decade.

In testimony to the Senate Homeland Security and Governmental Affairs permanent subcommittee, James said the Digital Asset Market Clarity Act "seeks to interfere with and preempt states' investor protection laws as well as dilute our ability to prosecute fraud," according to The Block, which reviewed the filing. "This is a mistake. State and local law agencies do the lion's share of law enforcement work in this country." She pressed for stronger anti-money-laundering and ethics language, asked Congress to hold DeFi platforms accountable when they act as intermediaries for fraud, and called for a bar on crypto that can't be "fully traced" through mixers, plus mandatory KYC/AML compliance.

The intervention lands as Republicans try to line up a floor vote. As of this week, per The Block, it's unclear whether they can secure the 60 votes needed; the released text has not yet drawn the necessary Democratic support. A central sticking point is ethics: the current language bars public officials and their spouses — but not other family members — from issuing or sponsoring digital assets, hands enforcement to the Justice Department, and sunsets the restrictions in January 2029. Democrats want language addressing President Trump's crypto interests, including a memecoin launched before Inauguration Day and his family's involvement in World Liberty Financial; financial disclosures released last month showed Trump received millions of dollars tied to WLF. James asked that officials be blocked from regulating industries they profit from, both in office and for a year after.

The calendar is tight. This is the House's final week before recess; the Senate leaves August 7, after which attention shifts to the election cycle. If the bill clears the Senate, it returns to the House, which passed its version a year ago.

Key facts

• James submitted written testimony Monday to the Senate HSGAC permanent subcommittee (The Block).
• Ethics provision covers officials and spouses only; DOJ enforces; restrictions sunset January 2029 (The Block).
• Trump received millions tied to World Liberty Financial per disclosures released last month (The Block).
• House recesses this week; Senate departs August 7 (The Block).

The real-world read

The lobbying is loud and one-sided. Industry-funded groups — the Crypto Council for Innovation, Blockchain Association, The Digital Chamber, and Coinbase-backed Stand With Crypto (now scoring the vote) — plus Franklin Templeton, which itself sells crypto products, are all framing the bill as consumer protection. James is the countervailing voice saying preemption cuts the other way. TD Cowen's Jaret Seiberg named the actual impasse bluntly: Democrats don't trust the administration to police the President's conflicts, and "Trump does not want to empower states to prosecute him over his crypto endeavors. There is no simple middle ground here." Note the interested party in the room — the officials writing the rules stand to profit from the market being regulated.

Opinion, and whose

• Seiberg (TD Cowen) calls the next 10 days "critical," with ethics an unresolved obstacle and no middle ground in sight.
• Franklin Templeton (which sells crypto products) argues the bill clarifies protections and regulators — a claim to weigh against its commercial interest.

Sources

• The Block (Sarah Wynn), 2026-07-27 — reported James's testimony, bill mechanics, timeline, and industry lobbying; quoted TD Cowen's Seiberg. Secondary outlet; its majority investor is Foresight Ventures. Franklin Templeton and Stand With Crypto statements it cites are advocacy from interested parties.

Not financial advice.