Tether Faces Lawsuit After Freezing $42M in USDT Without Legal Authorization

TLDR

• A lawsuit was filed by two Thai nationals against Tether in New York federal court on August 31, 2026, challenging a $42.4 million USDT freeze
• The freeze occurred on October 30, 2025, when Tether blacklisted ten Ethereum addresses following an informal request from a Homeland Security Investigations officer
• At the time of the freeze, no warrant, subpoena, or formal court order existed authorizing the action
• In February 2026, a seizure warrant was issued directing Tether to destroy the frozen tokens and mint new ones to a government-controlled address
• The lawsuit demands damages, removal of the blacklist, and payment of earnings Tether generated from reserve assets backing the frozen stablecoins

Tether is facing legal action from two Thai entrepreneurs who allege the stablecoin company froze $42.4 million worth of USDT tokens without proper legal authority or documentation.

The legal filing was submitted on August 31, 2026, to the U.S. District Court for the Southern District of New York. The individuals bringing the suit are Nutthawat Rukthammachalern and Natthawat Kasamvilas.

How the Freeze Occurred

The lawsuit alleges that on October 30, 2025, Tether placed ten Ethereum wallet addresses containing 42,417,785.62 USDT on a blacklist. This action reportedly followed an informal communication from an agent with Homeland Security Investigations.

No official warrant, judicial order, or subpoena existed at that moment to compel Tether’s action. The businessmen claim they were not given advance warning of the freeze.

After one plaintiff contacted Tether via email seeking clarification on why the funds were inaccessible, the company allegedly responded by providing the HSI agent’s contact information instead of offering a legal justification.

The freeze was implemented using Tether’s Ethereum smart contract function known as addBlackList, which restricts address activity. Another function, destroyBlackFunds, enables the permanent elimination of blacklisted tokens.

The complainants state they acquired these tokens through secondary market transactions and never established a direct contractual relationship with Tether. They contend that Tether’s technical control over the smart contract doesn’t translate into lawful jurisdiction over tokens owned by independent parties.

Subsequent Warrant and Government Seizure

Over three months following the initial freeze, on February 19, 2026, a magistrate judge in North Carolina authorized a seizure warrant. This warrant allegedly directed Tether to eliminate the frozen USDT and create replacement tokens in a wallet controlled by federal authorities.

Five days afterward, federal prosecutors publicly announced the seizure of over $61 million in USDT. Law enforcement officials stated the funds were connected to wallets associated with pig butchering fraud schemes.

The Department of Justice openly acknowledged Tether‘s cooperation in facilitating the asset transfer. Tether released its own statement on February 25, 2026, validating its participation in the enforcement action.

The plaintiffs contend that the warrant issued in February cannot legally justify the freeze that happened in October. They also question whether a seizure warrant permits token destruction prior to a final forfeiture ruling.

At the time the lawsuit was filed, the plaintiffs maintain that their specific 42.4 million USDT remained blacklisted and had not been moved to the government’s wallet.

The complaint outlines multiple legal claims including conversion, trespass to chattels, and unjust enrichment. The plaintiffs assert that Tether continued earning returns on the reserve assets supporting the frozen tokens throughout the blacklist period.

Their demands include a court order requiring Tether to lift the blacklist, prevent any token burning, compensate for damages, and surrender profits generated from the frozen assets.

Tether has not submitted a formal response to the court. No judicial decision has been made regarding the freeze’s legality, the warrant’s validity, or the injunction petition.

The plaintiffs additionally submitted a separate motion in North Carolina on July 31, requesting the return of their digital assets. Neither proceeding has resulted in a final determination concerning ownership or asset forfeiture.