Tether sued over alleged unlawful $42.4M USDT freeze

Two Thai businessmen sued Tether on Aug. 31 in the U.S. District Court for the Southern District of New York, challenging the issuer’s authority to freeze approximately 42.4 million $USDT before authorities secured a seizure warrant.

Nutthawat Rukthammachalern and Natthawat Kasamvilas allege in their complaint that Tether blacklisted ten Ethereum addresses containing precisely 42,417,785.62 $USDT on Oct. 30, 2025. The allegations have not been adjudicated, and Tether had not filed a public response as of Sept. 2.

Tether allegedly acted before obtaining legal process

The plaintiffs claim Tether acted after receiving an informal request from a Homeland Security Investigations agent. They contend no warrant, court order, subpoena or other formal legal process authorized the initial freeze.

Kasamvilas discovered the restriction after attempting a transaction, according to the filing. When he contacted Tether, the company allegedly referred him to an HSI agent’s email address without explaining its legal basis for blocking the funds.

The complaint says Tether used the addBlackList function within its Ethereum smart contract. This prevents tokens at designated addresses from moving. Another function, destroyBlackFunds, allows Tether to burn blacklisted $USDT.

The plaintiffs say they acquired the tokens through secondary-market business transactions and had no direct customer relationship with Tether. They argue that possessing technical control over the smart contract does not automatically give Tether legal authority over tokens held by third parties.

A later warrant targeted tokens linked to alleged fraud

On Feb. 19, 2026, a magistrate judge in the Eastern District of North Carolina issued seizure warrant 5:26-MJ-1267-JG. According to the New York complaint, the warrant described a process under which Tether would burn $USDT at the identified addresses, mint an equivalent amount and transfer the replacement tokens to a government-controlled wallet.

Five days later, federal prosecutors announced the seizure of more than $61 million in $USDT. Investigators alleged that the targeted wallets received proceeds from cryptocurrency investment scams commonly called pig-butchering schemes.

HSI reportedly opened the investigation after receiving a victim’s tip. Investigators traced funds through multiple wallets that authorities said were used to obscure the money’s source, ownership and connection to fake trading platforms.

The Justice Department thanked Tether for assisting with the asset transfer. Tether separately confirmed its involvement in the broader $61 million operation.

However, the new complaint says the plaintiffs’ specific 42.4 million $USDT remained frozen when the case was filed. It seeks to prevent Tether from burning those tokens. The available records therefore do not establish that the disputed tokens had already been transferred to the government wallet.

Tether lawsuit tests stablecoin issuers’ freezing powers

The plaintiffs do not merely challenge the government’s tracing allegations. Their case focuses on whether a private stablecoin issuer may restrict secondary-market tokens after an informal law-enforcement request and before receiving judicial authorization.

They also argue the February warrant could not retroactively validate Tether’s October action. The complaint further disputes whether a seizure warrant permits burning the named property and replacing it with newly minted tokens before a final forfeiture judgment.

The claims include conversion, trespass to chattels, unjust enrichment and requests for declaratory and injunctive relief. The businessmen want Tether ordered to remove the blacklist, pay damages if the tokens are destroyed and surrender income allegedly earned from reserves supporting the frozen $USDT.

Tether’s law-enforcement powers operate at a considerable scale. As crypto.news previously reported, the company froze $514 million across 370 addresses during one 30-day period in 2026. Its 2025 blacklist covered 4,163 Ethereum and Tron addresses, according to BlockSec data cited in that report.

The next procedural step will be service of the complaint and Tether’s response. The court could also consider an early injunction request if the plaintiffs seek immediate protection against burning or reissuing the disputed tokens.

Separately, the plaintiffs told the New York court that they filed an application in North Carolina on July 31 seeking the return of the $USDT. Neither proceeding has produced a judgment on ownership, forfeiture or Tether’s liability.