Two Thai businessmen have sued Tether over its freezing of 42.4 million USDT across 10 Ethereum addresses, alleging the company blocked the tokens months before any U.S. court issued a seizure warrant.
According to the complaint, filed in September 2026, Tether blacklisted the addresses holding a precise 42,417,785.62 USDT on October 30, 2025. No subpoena, no seizure order, and no advance notice accompanied the action, the plaintiffs say. A U.S. magistrate judge in the Eastern District of North Carolina did not issue a warrant until February 19, 2026 – more than three months later.
The plaintiffs allege that Tether acted in response to an informal request from a U.S. law enforcement agent rather than a formal legal process. The complaint argues this violated their rights by freezing their assets without judicial oversight or an opportunity to contest the action beforehand. The lawsuit also seeks damages and the return of interest or other income Tether earned from reserves backing the frozen USDT during the period it was locked.
How the Freeze Works
The case turns on two functions built into Tether’s Ethereum smart contract. The first, addBlackList, stops tokens at flagged addresses from moving. The second, destroyBlackFunds, lets Tether burn blacklisted tokens entirely. Both functions give Tether unilateral control over the fate of USDT held at any address it chooses to blacklist, with no built-in mechanism for the affected party to appeal or even receive advance notification.
The plaintiffs argue that this centralized control undermines one of the core promises of stablecoins: that tokens can be held and transferred without the kind of intermediary gatekeeping that characterizes traditional banking. When Tether freezes an address, the effect is similar to a bank account freeze, except it happens without a court order and with no clear process for the affected party to challenge it.
The complaint points out that the freeze was executed instantly, with the tokens becoming inaccessible the moment Tether applied the blacklist. The affected addresses were locked for months before any judicial authority reviewed the situation, leaving the plaintiffs with no legal recourse during that period.
A Pig-Butchering Connection
The underlying funds are connected to so-called pig-butchering scams, in which fraudsters build fake romantic or social relationships with victims to extract funds, which are then laundered through crypto. U.S. authorities have been increasingly aggressive in seizing crypto tied to these operations. The DOJ recently flagged $12.7 billion in suspicious financial activity linked to overseas digital-asset investment fraud, according to a FinCEN review of nearly 34,000 reports.
But the plaintiffs argue that the fact the funds may be connected to fraud does not give Tether the right to freeze them without a warrant. They say the company should have waited for formal legal process rather than acting on an informal request, and that its willingness to do so raises questions about who else Tether might freeze and under what circumstances. The argument is not that the funds are clean, but that the process used to freeze them was flawed.
The complaint also notes that Tether has a financial incentive to freeze tokens rather than return them. When USDT is frozen, the reserves backing those tokens remain on Tether’s balance sheet, generating yield for the company. The plaintiffs allege that Tether earned interest on the dollar reserves backing the 42.4 million frozen USDT throughout the period the tokens were locked, benefiting financially from a freeze it imposed without judicial authorization.
Implications for Stablecoin Users
The case highlights a growing tension in the stablecoin industry between compliance and user rights. Tether has frozen hundreds of millions of dollars in USDT over the years, often in response to law enforcement requests. The company has said these actions are necessary to prevent its tokens from being used for illicit purposes and that cooperation with authorities is a standard part of operating a regulated financial product.
But critics argue that the lack of due process creates a system where Tether acts as judge, jury, and executioner over funds it holds in reserve. The complaint draws a parallel to traditional banking law, where banks generally require a court order before freezing customer accounts. Tether, by contrast, can freeze any address with no external oversight, and the affected party often learns about the freeze only when their tokens suddenly become untransferable.
If a court ultimately sides with the plaintiffs, it could force Tether and other stablecoin issuers to adopt more formal procedures before freezing user assets, potentially slowing down law enforcement cooperation in the process. The ruling could also set limits on how much control stablecoin issuers exercise over user funds, a question that has implications for the broader crypto industry.
GENIUS Act and the Regulatory Landscape
The broader regulatory context matters. The GENIUS Act, signed into law in July 2025, created a federal framework for payment stablecoins that requires full reserve backing and sets rules for issuer conduct. But the law does not explicitly address the circumstances under which a stablecoin issuer can freeze user funds, or whether informal law enforcement requests are sufficient to trigger such action.
As of early September, the $42.4 million in USDT remains frozen, neither burned nor returned. Tether had not filed a public response to the lawsuit as of the time of reporting. The case remains at the complaint stage, but its outcome could set an important precedent for how stablecoin issuers interact with law enforcement and how much control they exercise over user funds.
Whether Tether’s freeze authority is compatible with the GENIUS Act framework, or whether the law needs to address the gap between informal enforcement cooperation and formal legal process, is a question the courts may eventually need to answer. For now, the case sits at the intersection of crypto compliance, due process rights, and the fundamental question of who controls your money when it sits on someone else’s blockchain.
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