Tether is facing a New York federal lawsuit over its decision to freeze approximately $42.4 million in USDT before authorities obtained a seizure warrant. The complaint was filed on August 31, 2026, in the U.S. District Court for the Southern District of New York by two Thai businessmen, Nutthawat Rukthammachalern and Natthawat Kasamvilas.
According to the lawsuit, Tether blacklisted ten Ethereum addresses holding exactly 42,417,785.62 USDT on October 30, 2025. The plaintiffs claim this action came after an informal request from a Homeland Security Investigations agent, and that no warrant, court order, subpoena, or other formal legal process existed at the time of the freeze. Kasamvilas allegedly discovered the restriction after attempting a transaction. When he contacted Tether, the company referred him to an HSI agent’s email address rather than explaining its legal basis for blocking the funds.
The complaint says Tether used the addBlackList function within its Ethereum smart contract to prevent the tokens from moving. It also notes that a separate function, destroyBlackFunds, allows Tether to burn blacklisted USDT. The plaintiffs argue they acquired the tokens through secondary-market business transactions and had no direct customer relationship with Tether. They contend that controlling a smart contract does not automatically give Tether legal authority over tokens held by third parties.
A seizure warrant was later issued on February 19, 2026, by a magistrate judge in the Eastern District of North Carolina. 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, saying the targeted wallets received proceeds from cryptocurrency investment scams known as pig-butchering schemes. The Justice Department thanked Tether for assisting with the asset transfer, and Tether confirmed its involvement in the broader $61 million operation.
However, the plaintiffs argue that the February warrant could not retroactively validate Tether’s October freeze. They say their specific 42.4 million USDT remained frozen when the lawsuit was filed and dispute whether a seizure warrant permits burning 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. They also filed a separate application in North Carolina on July 31 seeking the return of the tokens. Tether had not filed a public response as of September 2.
The case tests how far a private stablecoin issuer can restrict secondary-market tokens after an informal law-enforcement request and before receiving judicial authorization. Tether’s freezing powers operate at considerable scale: the company previously froze $514 million across 370 addresses during one 30-day period in 2026, and its 2025 blacklist covered 4,163 Ethereum and Tron addresses.
