Tether Sued Over Alleged Illegal $42.4M USDT Freeze and Transfer to US Government Wallet

Points of Focus

• Plaintiffs allege Tether froze $42.4 million in USDT before a seizure warrant was issued.
• Tether calls the lawsuit baseless and points to its cooperation with US authorities.
• The case highlights Tether’s ability to freeze USDT held in self-custody wallets.

Tether is facing a federal lawsuit from two Thai businessmen who allege the stablecoin issuer froze $42.4 million in USDT months before US authorities obtained a seizure warrant, raising fresh questions over how much control an issuer retains over tokens held in self-custody.

Nutthawat Rukthammachalern and Natthawat Kasamvilas filed the complaint Aug. 31 in the Southern District of New York. They allege Tether blacklisted 10 Ethereum addresses holding 42,417,785.62 USDT on Oct. 30, 2025, following an informal request from a Homeland Security Investigations agent. According to the filing, no warrant, subpoena or court order was in place at the time.

A federal magistrate judge in North Carolina issued a seizure warrant on Feb. 19, 2026, roughly four months later. The complaint says the warrant contemplated Tether burning the frozen USDT, minting replacement tokens and transmitting them to a government-controlled wallet.

Two Thai Businessmen Sue Tether for Allegedly Illegally Freezing $42.4M USDT at US Request and Transferring Funds to Government Wallet

According to attorney Ariel Givner, two Thai businessmen filed a lawsuit against Tether in the US District Court for the Southern District of… pic.twitter.com/aGzamJ7kHM

— Wu Blockchain (@WuBlockchain) September 2, 2026

Tether calls lawsuit baseless

Tether disputes the plaintiffs’ characterization of events.

“The new lawsuit against Tether is a baseless attempt to interfere with Tether’s important work with global law enforcement,” the company said, pointing to its cooperation with the Department of Justice to prevent illicit USDT use.

The underlying government case involved a larger pool of assets. On Feb. 24, the Justice Department announced the seizure of more than $61 million in USDT allegedly linked to cryptocurrency investment scams.

Investigators said victims were directed to fraudulent trading platforms before their funds were routed through multiple wallets to obscure their origin. The DOJ explicitly thanked Tether for assisting with the transfer of the seized assets.

The businessmen are challenging whether Tether had authority to impose the earlier freeze. Their allegations have not been proven, and the government’s claim that assets were linked to laundering does not itself establish wrongdoing by every person asserting ownership over funds caught in the traced transactions.

Self-custody does not remove Tether’s blacklist power

Joshua Kim, founder and CEO of decentralized crowdfunding platform DonaFi, told AlphaWire that Tether has considerable discretion under its terms.

“Tether has pretty broad discretion here,” Kim said, noting that freezes can follow suspected fraud, theft, sanctions violations or law-enforcement requests even before formal seizure proceedings conclude.

That creates a particular risk when blockchain tracing connects otherwise legitimate holders to suspicious transaction flows.

“A freeze therefore doesn’t automatically establish that the holder did anything wrong,” Kim said.

Tether has previously acknowledged that possibility. After freezing $225 million in USDT during an earlier law-enforcement investigation, it said legitimate wallets inadvertently captured by the action could potentially be unfrozen following cooperation with authorities.

USDT is not Bitcoin-style self-custody

The lawsuit also highlights a technical difference between centralized stablecoins and assets such as Bitcoin.

USDT holders may control their wallet keys, but Tether retains smart-contract functions capable of preventing specific addresses from transferring tokens.

Kim said this means users should separate control of a wallet from control over the asset itself.

“Self-custody describes control of your wallet,” he said, but with centralized stablecoins it should not automatically be confused with censorship-resistant ownership.

The dispute could now test where the legal boundary sits between those technical powers and formal government seizure procedures.

For Tether, issuer-level freezing is a tool that has helped authorities recover proceeds from scams. For the plaintiffs, the central question is whether that power can legally be exercised against third-party holders before a judge authorizes the seizure.