Two Thai businessmen filed a lawsuit against Tether on August 31, 2026, in the U.S. District Court for the Southern District of New York, challenging the stablecoin issuer's authority to freeze approximately 42.4 million USDT before obtaining proper legal authorization. According to the complaint filed by Nutthawat Rukthammachalern and Natthawat Kasamvilas, Tether blacklisted ten Ethereum addresses containing precisely 42,417,785.62 USDT on October 30, 2025, after receiving an informal request from a Homeland Security Investigations agent. The allegations have not been adjudicated, and Tether had not filed a public response as of September 2, 2026. As per attorney Ariel Givner, the lawsuit challenges Tether's authority to freeze wallets based solely on informal requests from the U.S. government, particularly from Homeland Security Investigations. The plaintiffs never dispute that the government calls those coins scam proceeds, but argue the freeze was illegal without proper legal process. According to the defendants, Tether's action occurred after an informal request by U.S. Homeland Security Investigations (HSI), but there was no immediate legal warrant or court order before the action.
The plaintiffs claim Tether acted without proper legal process, alleging no warrant, court order, subpoena or other formal legal process authorized the initial freeze. According to the filing, Kasamvilas discovered the restriction after attempting a transaction and contacted Tether, which allegedly referred him to an HSI agent's email address without explaining its legal basis for blocking the funds. The complaint details that Tether used the addBlackList function within its Ethereum smart contract, which prevents tokens at designated addresses from moving, and the destroyBlackFunds function, which 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, questioning whether technical control over the smart contract automatically grants legal authority over third-party tokens. This case raises important questions about cryptocurrency companies' interaction with government requests and their handling of user assets in such situations. The victims' primary argument is that Tether froze their funds without a warrant or court order, with the formal seizure warrant coming only three months later in February tied to a pig butchering romance scam investigation in North Carolina.
On February 19, 2026, a magistrate judge in the Eastern District of North Carolina issued seizure warrant 5:26-MJ-1267-JG, directing Tether to burn USDT at identified addresses, mint equivalent amounts, and transfer replacement tokens to a government-controlled wallet. According to the complaint, federal prosecutors announced the seizure of more than $61 million in USDT five days later, with investigators alleging the targeted wallets received proceeds from cryptocurrency investment scams known as pig-butchering schemes. HSI reportedly opened the investigation after receiving a victim's tip, tracing funds through multiple wallets used to obscure money's source and connection to fake trading platforms. The Justice Department thanked Tether for assisting with the asset transfer, while Tether separately confirmed its involvement in the broader operation. The jurisdiction stems from the U.S. District Court's authority over financial transactions involving U.S. citizens and entities, especially when allegations of unlawful asset freezing are involved.
The plaintiffs seek declaratory relief, an injunction, damages, reserve income disgorgement, and punitive damages from Tether. According to the complaint, the plaintiffs 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. The victims want their funds, plus all earned interest income, as they claim Tether has been earning interest from the reserves backing their frozen $42.4 million worth of USDT tokens. The case tests whether a private stablecoin issuer may restrict secondary-market tokens after an informal law-enforcement request and before receiving judicial authorization. The plaintiffs argue the February warrant could not retroactively validate Tether's October action and dispute whether a seizure warrant permits burning named property and replacing it with newly minted tokens before final forfeiture judgment. The enrichment count specifically targets interest earned on Tether's reserves, as the company holds roughly $130 billion in Treasury securities through Cantor Fitzgerald while frozen holders cannot redeem their assets. The broader crypto market has been navigating mixed signals as various assets exhibit volatile momentum, with Tether's trading volume currently standing at $0 over the past 24 hours, indicating a period of low market activity.
The lawsuit represents a significant challenge to Tether's law-enforcement powers, which operate at considerable scale according to previous reports. As crypto.news previously reported, Tether froze $514 million across 370 addresses during one 30-day period in 2026, with its 2025 blacklist covering 4,163 Ethereum and Tron addresses according to BlockSec data. According to AMBCrypto, Tether's USDT freezing spree has surged to nearly $6 billion in 2026, mainly dominated by Tron, with over $1 billion linked to OFAC sanctions against Iran. The next procedural step will be service of the complaint and Tether's response, with the court potentially considering 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 they filed an application in North Carolina on July 31 seeking return of the USDT, though neither proceeding has produced a judgment on ownership, forfeiture, or Tether's liability. Legal experts have mixed views on the case, with some suggesting the victims should have sued the U.S. government rather than Tether, while others view Tether's slow response to freezes as a better approach. The outcome could lead to increased scrutiny on how stablecoins interact with regulatory bodies and may influence broader market confidence in Tether and similar stablecoins, potentially affecting their usage and adoption in trading.
