Tether Sued Over $42.4M USDT Freeze Before Warrant

Tether is facing a lawsuit over $42.4 million in frozen USDT, with two Thai businessmen alleging that the stablecoin issuer blacklisted their wallets months before U.S. authorities obtained a seizure warrant.

Nutthawat Rukthammachalern and Natthawat Kasamvilas filed the complaint on August 31 in the U.S. District Court for the Southern District of New York. The case challenges whether Tether had the legal authority to freeze the tokens after an informal request from U.S. investigators.

The lawsuit does not dispute that U.S. authorities later identified the funds as being connected to a broader fraud investigation. Instead, the plaintiffs are challenging when and how Tether froze the USDT.

Tether Froze the USDT Before a Warrant

According to the complaint, Tether blacklisted 10 Ethereum addresses containing 42,417,785.62 USDT on October 30, 2025.

The plaintiffs say they contacted Tether two days later after discovering the restriction. The company allegedly directed them to a Homeland Security Investigations (HSI) special agent but did not provide them with a warrant or other legal process supporting the freeze at that time.

A seizure warrant was subsequently issued by a magistrate judge in the Eastern District of North Carolina on February 19, 2026.

The warrant directed the frozen USDT to be burned and equivalent tokens reissued to a government-controlled wallet. Five days later, prosecutors announced a $61 million USDT seizure connected to a romance-investment fraud investigation.

The plaintiffs' central argument is that the February warrant came more than three months after the original freeze and therefore did not authorize Tether's earlier action.

Lawsuit Targets Tether's Control Over USDT

The case raises a broader question about how centralized stablecoins operate.

Unlike decentralized cryptocurrencies such as Bitcoin, USDT contains mechanisms that allow Tether to blacklist specific addresses and prevent their tokens from being transferred.

The plaintiffs argue that this power was used against their wallets without sufficient legal authority. They also say they acquired the USDT through secondary-market transactions and did not have a direct contractual relationship with Tether.

The complaint includes claims involving conversion, trespass to chattels and unjust enrichment, among others. The plaintiffs are seeking restoration of transferability, protection against further burning of the tokens, damages and the return of income allegedly earned from the reserves backing the frozen USDT.

Tether's Reserve Income Is Another Issue

The lawsuit also focuses on what happens to the assets backing USDT while individual tokens remain frozen.

The plaintiffs allege that Tether continues to earn income from the reserves backing the immobilized tokens even though the holders cannot transfer or redeem them. That forms the basis of their unjust-enrichment claim.

This issue could make the case particularly significant for stablecoin users.

Tether's ability to freeze USDT is already an important part of how the company responds to sanctions, law-enforcement requests and suspected illicit activity. But this lawsuit puts the timing of that intervention under legal scrutiny.

The case comes as crypto platforms continue to face growing security and fraud risks. Recent crypto hacks have already resulted in tens of millions of dollars in stolen assets, highlighting why issuers and blockchain companies face pressure to respond quickly when suspicious funds are identified.

No Court Has Ruled on the Claims

The allegations against Tether remain unproven.

The lawsuit was only filed on August 31, and Tether had not publicly responded as of September 2. No judge has ruled on whether the initial freeze was lawful.

That makes the next stage of the case particularly important.

Tether's response will likely address the company's authority to blacklist the addresses and its interaction with U.S. law enforcement. The court will ultimately have to consider whether Tether's actions before the February warrant were legally justified.

For USDT users, the case could have implications well beyond the $42.4 million involved. It puts a spotlight on a fundamental feature of centralized stablecoins: the issuer can technically stop specific tokens from moving.

The question now is how far that power extends when a government request arrives before formal legal process.