Tether Sued Over Alleged Unlawful $42.4M USDT Freeze

On August 31, 2026, two Thai businessmen filed suit in the U.S. District Court for the Southern District of New York, alleging that Tether unlawfully froze approximately 42,417,785.62 USDT across ten Ethereum addresses on October 30, 2025. The plaintiffs, Nutthawat Rukthammachalern and Natthawat Kasamvilas, claim the issuer acted after an informal request from a Homeland Security Investigations agent, without a warrant, court order, subpoena, or other formal judicial authorization. As of September 2, 2026, the parties had not reached a judicial determination and Tether had not publicly filed a formal response in that New York case.

Key allegations

Plaintiffs assert that Tether used the stablecoin's Ethereum smart contract controls to add the ten addresses to a blacklist using the addBlackList function, effectively preventing token transfers. They further allege that the company has the technical ability to destroy blacklisted funds using a destroyBlackFunds function. The complaint says the plaintiffs acquired the USDT through secondary-market business transactions and had no direct customer relationship with Tether, arguing that technical control over the smart contract does not equate to unilateral legal authority to seize or burn tokens held by third parties.

Timeline: freeze, warrant, and broader seizures

According to the complaint, the October 30, 2025 freeze preceded formal judicial action. On February 19, 2026, a magistrate in the Eastern District of North Carolina issued seizure warrant 5:26-MJ-1267-JG that, as described in the New York filing, authorized a process where Tether would burn USDT at specified addresses, mint an equivalent amount, and transfer replacement tokens to a government-controlled wallet. Five days after that warrant, federal prosecutors announced a seizure of more than $61 million in USDT tied to wallets alleged to be connected with crypto investment fraud often called pig-butchering schemes. The Department of Justice thanked Tether for assisting with the transfer, and Tether later confirmed it participated in the broader $61 million operation.

Despite the broader seizure action, the complaint alleges that the plaintiffs' 42.4 million USDT remained frozen in Tether's blacklist when the New York suit was filed and seeks to prevent Tether from burning those tokens or reissuing replacements before ownership and forfeiture issues are resolved in court. The plaintiffs also say they filed a separate North Carolina application on July 31 seeking return of the USDT; neither proceeding has produced a judgment on ownership, forfeiture, or Tether's liability.

Legal claims and remedies sought

The suit advances multiple claims, including conversion, trespass to chattels, unjust enrichment, and requests for declaratory and injunctive relief. The plaintiffs seek a court order removing the blacklist from the contested addresses, an injunction to stop any destruction or reissuance of the tokens, compensatory damages if tokens have been destroyed, disgorgement of reserve income allegedly earned by Tether on those frozen USDT, and punitive damages. Central to their theory is that a private stablecoin issuer cannot block or extinguish secondary-market tokens solely on the basis of an informal law enforcement request.

Core legal questions

The New York complaint raises two intertwined issues with broad implications for stablecoin governance: whether an issuer can lawfully restrict or extinguish tokens held by third parties without prior judicial authorization, and whether a later-issued seizure warrant can retroactively validate an earlier freeze. The complaint also challenges the scope of a seizure warrant that would permit burning identified property and replacing it with newly minted tokens prior to a final forfeiture judgment.

Broader implications for stablecoins and crypto compliance

This litigation will test private enforcement powers built into many stablecoin contracts. Tether is among the issuers most frequently cited for on-chain freezes: reporting indicates the firm froze $514 million across 370 addresses in one 30-day period in 2026, and BlockSec data cited by media noted a 2025 blacklist covering 4,163 Ethereum and Tron addresses. Those operational capabilities raise important regulatory and custodial questions for market participants, crypto exchanges, and legal authorities about due process, asset custody, and the intersection of compliance with on-chain governance mechanisms.

For traders, exchanges, and institutional holders of USDT, the case underscores counterparty risk associated with centralized stablecoin issuers that retain privileged powers to blacklist or burn tokens. For regulators and law enforcement, it raises questions about coordinated procedures for obtaining judicial authorization before blocking access to large pools of tokenized value, and about transparency in how informal requests from agencies are handled by private issuers.

Next steps in litigation

Procedurally, the immediate steps are service of the complaint on Tether and the company’s responsive pleadings. The plaintiffs or the court may seek expedited injunctive relief to prevent Tether from destroying or reissuing the disputed USDT while ownership and forfeiture issues remain unresolved. If the court considers an early injunction, it will weigh the plaintiffs’ risk of irreparable harm against any government interest in preserving assets tied to alleged criminal schemes.

Conclusion

The New York suit against Tether spotlights a pivotal debate in crypto law: how to balance law enforcement needs and asset forfeiture against property rights and due process for secondary-market participants. The outcome could clarify the legal limits of issuer-side freezing powers for USDT and other centralized stablecoins, with significant consequences for token custodianship, exchange compliance, and broader market trust in stablecoin mechanics and governance.