Two Thai businessmen have sued Tether in a US federal court over the freezing of $42.4 million in USDT, arguing the stablecoin issuer blacklisted their wallets nearly four months before any court authorised the seizure.
Nutthawat Rukthammachalern and Natthawat Kasamvilas filed the suit on 31 August in the US District Court for the Southern District of New York. According to the complaint, Tether blacklisted ten Ethereum addresses holding a combined 42,417,785.62 USDT on 30 October 2025, acting on an informal request from Homeland Security Investigations.
No warrant, subpoena or court order directed the freeze at that time, the plaintiffs allege.
A magistrate judge in the Eastern District of North Carolina issued seizure warrant 5:26-MJ-1267-JG on 19 February 2026. That order instructed Tether to burn the frozen tokens and reissue equivalent amounts to a government-controlled wallet.
David Schwartz, the former Ripple chief technology officer and architect of the XRP Ledger, publicly backed Tether on 2 September, describing the company’s actions as administratively and legally justified.
The plaintiffs are not disputing the crime
The case turns on process rather than on whether the underlying funds were dirty, which is what makes it legally interesting.
The addresses formed part of a federal investigation into cryptocurrency investment fraud. US authorities ultimately seized more than $61 million in USDT traced to wallets allegedly used to receive and launder proceeds from pig-butchering scams, a category of long-con fraud in which victims are groomed over weeks before being persuaded to invest.
Tether assisted investigators with transferring the seized assets.
According to the reporting, the plaintiffs do not contest the criminal allegations connected to the funds. They say they acquired their USDT through legitimate secondary-market business transactions and are challenging the mechanism by which it was frozen and later moved.
Two questions sit at the centre. Whether Tether had legal authority to restrict the assets before judicial authorisation existed, and whether the February warrant actually authorised burning the USDT and reissuing equivalent tokens to a government wallet, or whether that exceeded its scope.
The plaintiffs are seeking the blacklist lifted, damages, and disgorgement of the interest income Tether earned managing the reserves backing the frozen tokens during the period they could not access them. They also allege Tether’s marketing does not adequately disclose that it retains the ability to freeze holdings at will.
Schwartz’s argument is about speed
The defence Schwartz offered addresses a practical problem rather than a legal one.
He argued that immediate freeze capability is critical to anti-money-laundering efforts, and that stripping issuers of the power to act quickly in suspected fraud cases would leave victims without fast recourse. Removing that capability, he warned, would allow stolen funds to be moved and laundered before any court could intervene, turning stablecoins into a magnet for criminal financial activity.
The timing evidence in this case supports his premise on its own terms. The gap between the informal HSI request in October 2025 and the warrant in February 2026 was almost four months. Funds sitting in an Ethereum wallet for four months while a warrant is prepared would not be sitting there at the end of it.
The counterargument is equally direct. A private company acting on an informal law enforcement request, without judicial oversight, over funds belonging to people who have not been charged with anything, is a considerable amount of discretion to hold. Schwartz’s argument establishes why the power is useful. It does not establish where its limits are.
Tether’s terms of service are the battleground
Tether is defending its policy of restricting accounts under its terms of service prior to any court order.
The contractual position is straightforward. USDT holders agree to terms permitting Tether to freeze tokens, and the freeze function is written into the contract itself. Tether can blacklist any address, after which the tokens in it become untransferable.
Whether a contractual right creates legal authority sufficient to withstand a challenge from a holder claiming legitimate ownership is precisely what the court will decide. That distinction matters well beyond this case.
The scale involved gives the question weight. Tether has frozen close to $6 billion during 2026 amid regulatory pressure from US authorities. In July, when OFAC added four cryptocurrency addresses to its Central Bank of Iran designation, Tether froze $131 million within hours of the update.
Those actions have generally been welcomed. Freezes tied to sanctions designations, exchange hacks and confirmed fraud have recovered funds that would otherwise have vanished. This case is testing what happens when a holder disputes their inclusion.
What a ruling would establish
A decision here would clarify how far stablecoin issuers can go in responding to regulatory and law enforcement requests before formal legal authorisation exists.
If the court finds Tether’s terms of service provide sufficient authority, issuers gain confidence to continue acting on informal requests, and the practical value of the freeze function as an anti-fraud tool is preserved. If it finds otherwise, issuers may require warrants before acting, which would slow response times considerably and change the calculation for law enforcement.
Either outcome affects USDC, PYUSD and every other centralised stablecoin with a comparable function, since the architecture is essentially identical across issuers.
There is a broader point underneath. Centralised stablecoins are frequently described as digital cash, and the comparison breaks down precisely here. Cash cannot be remotely disabled by its issuer. The freeze function is not a flaw in USDT’s design; it is a deliberate feature that makes the token compatible with regulated finance. This case asks what obligations come attached to it.
No hearing date has been reported, and Tether has not filed a public response.
Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making any investment decisions.
