Tether Sued over Alleged Unlawful $42.4M USDT Freeze

Two Thai businessmen have filed a lawsuit against Tether in the U.S. District Court for the Southern District of New York, alleging the stablecoin issuer unlawfully froze approximately 42.4 million USDT on the Ethereum blockchain without a court order or formal legal authorization. The plaintiffs claim Tether acted on an informal request from a Homeland Security Investigations agent, blacklisting ten addresses before any seizure warrant was obtained. Complaint Details: Blacklisting Without a Warrant Nutthawat Rukthammachalern and Natthawat Kasamvilas filed the complaint on Aug. 31, challenging Tether’s authority to freeze 42,417,785.62 USDT across ten Ethereum addresses. According to the filing, the freeze occurred on Oct. 30, 2025, when Tether invoked the `addBlackList` function within its Ethereum smart contract, preventing tokens at those designated addresses from being moved. The contract also includes a `destroyBlackFunds` function that allows Tether to burn blacklisted USDT. The plaintiffs allege that Tether acted after receiving an informal request from a Homeland Security Investigations agent, but no warrant, court order, subpoena, or other formal legal process had been issued at the time of the freeze. Kasamvilas discovered the restriction when attempting to initiate a transaction. Upon contacting Tether, the company allegedly referred him to an HSI agent’s email address without explaining the legal basis for blocking the funds. “The plaintiffs argue that possessing technical control over the smart contract does not automatically give Tether legal authority over tokens held by third parties,” the complaint states. The plaintiffs say they acquired the tokens through secondary-market business transactions and had no direct customer relationship with Tether. The Pig-butchering Scam Connection The frozen funds are linked to a North Carolina-based pig-butchering scheme investigated by HSI Raleigh. The case opened after a victim reported romance and investment fraud involving a fake trading platform. Investigators traced funds through multiple wallets used to “layer” the stolen USDT, making it appear clean. Key Event / Entity Date / Description Legal or Procedural Status Complaint filed by Thai businessmen Aug. 31, 2025 Pending in U.S. District Court, Southern District of New York Tether blacklists 10 Ethereum addresses Oct. 30, 2025 No warrant or subpoena at that time, per plaintiffs Seizure warrant issued by Magistrate Judge Feb. 19, 2026 Warrant 5:26-MJ-1267-JG in Eastern District of North Carolina Federal prosecutors announce seizure of u003E$61M USDT Feb. 24, 2026 Funds linked to pig-butchering investment scams The seizure warrant, issued on Feb. 19, 2026, 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, alleging the targeted wallets held proceeds from cryptocurrency investment scams commonly called pig-butchering schemes. Tether’s Smart Contract Control and Legal Authority The complaint centers on whether Tether’s technical ability to freeze addresses through its smart contract functions gives it the legal right to do so without a court order. The plaintiffs argue that Tether’s role as a centralized issuer does not grant it unilateral authority over tokens held by independent third parties. They contend that the company acted as a de facto law enforcement agent without proper oversight. The allegations have not been adjudicated, and Tether had not filed a public response as of Sept. 2. The case raises questions about the balance between stablecoin issuers’ compliance with law enforcement requests and the property rights of token holders. Is Tether Legally Allowed to Freeze USDT Without a Court Order? Tether’s terms of service allow it to freeze addresses if it believes in good faith that such action is required by law or regulation. However, the plaintiffs argue that an informal request from an HSI agent does not constitute a legal mandate, and that a warrant or subpoena is necessary before freezing funds held by third parties. What Happened to the $42.4 Million in USDT After the Freeze? The frozen USDT remained on the Ethereum blockchain at the ten blacklisted addresses. According to the complaint, Tether did not burn or transfer the funds until after a seizure warrant was issued on Feb. 19, 2026. The warrant authorized Tether to burn the frozen tokens and mint an equivalent amount to send to a government-controlled wallet. Who Are the Plaintiffs in the Lawsuit Against Tether? The plaintiffs are Nutthawat Rukthammachalern and Natthawat Kasamvilas, two Thai businessmen. They claim they acquired the 42.4 million USDT through legitimate secondary-market business transactions and had no direct customer relationship with Tether. They allege the freeze damaged their business operations. What Is a Pig-butchering Scam in the Context of This Case? Pig-butchering is a type of cryptocurrency investment fraud where scammers build trust with victims through romance or social engineering, then convince them to invest in fake trading platforms. The funds are layered through multiple wallets to obscure their origin. HSI Raleigh investigated a victim’s tip that led to the seizure of more than $61 million in USDT linked to such schemes. Could This Lawsuit Affect How Tether Handles Future Freeze Requests? The outcome of the case could set a precedent for how stablecoin issuers interact with law enforcement. If the court rules that Tether must obtain a formal legal process before freezing third-party tokens, it may force changes in the company’s compliance procedures. Tether has historically cooperated with law enforcement, but this lawsuit challenges the legal limits of that cooperation.