Two Thai businessmen filed a lawsuit against Tether on August 31 in the U.S. District Court for the Southern District of New York, accusing the stablecoin issuer of freezing $42.4 million in USDT without legal authority and holding their funds hostage for months before any court order existed.
Nutthawat Rukthammachalern and Natthawat Kasamvilas say Tether blacklisted ten Ethereum addresses holding a combined $42,417,785.62 in USDT on October 30, 2025. The seizure warrant that eventually authorized such action did not arrive until February 19, 2026, nearly four months later.
The timing gap is the central issue in the complaint. According to the filing, the freeze followed an informal verbal request from a Homeland Security Investigations agent. The plaintiffs argue that a single agent phone call does not constitute a legal process and cannot justify locking down tens of millions of dollars in digital assets for months on end.
A Warrant From a Different Case
The federal seizure warrant that Tether eventually received came from a completely unrelated matter. A magistrate judge in the Eastern District of North Carolina issued warrant No. 5:26-MJ-1267-JG on February 19, 2026, in connection with a pig-butchering investment scam investigation, according to the complaint.
That warrant directed Tether to destroy the frozen USDT tokens and mint replacement tokens to a government-controlled wallet. The plaintiffs say this amounts to the company acting as an enforcement arm of law enforcement without the judicial oversight that due process requires.
A verbal request from a single agent cannot justify a freeze action, the complaint argues, calling it insufficient under both federal law and the Fourth Amendment protections against unreasonable seizure of property.
The complaint names four Tether entities as defendants, all based in El Salvador. It says the firm locked the ten Ethereum wallet addresses after the informal HSI request, then refused to release them when the plaintiffs emailed the company and got referred back to the same agency that initiated the freeze.
What Happened Between the Freeze and the Lawsuit
After the freeze in October 2025, the plaintiffs reached out to Tether through official channels, the complaint says. Tether directed them to Homeland Security Investigations. The plaintiffs contacted HSI but received no resolution. Months passed with no warrant, no charges, and no explanation of what legal basis justified the freeze.
When the warrant finally arrived in February 2026 from North Carolina, it was tied to a completely different investigation. The plaintiffs were not named in the warrant, nor were they suspects in the pig-butchering case. The warrant simply identified the same ten Ethereum addresses and ordered Tether to burn the tokens and reissue them to a government wallet.
The plaintiffs say Tether is now holding roughly $42.4 million that does not belong to the government and was never subject to any judicial order when the freeze happened. They want it returned.
What the Plaintiffs Want
The lawsuit seeks declaratory relief, an injunction blocking Tether from burning or reissuing the disputed tokens while the case proceeds, damages, and disgorgement of any income Tether earned on reserves backing the frozen USDT. The plaintiffs also want punitive damages and removal of their addresses from the blacklist.
They specifically ask the court to bar Tether from destroying the tokens during litigation, arguing that the warrant directed at government-controlled reissuance was issued in a case where the plaintiffs have no connection whatsoever.
Stablecoin Freezes Raise Due Process Questions
The case highlights a growing tension in the stablecoin industry. Tether has long maintained that it cooperates with law enforcement to freeze addresses linked to illicit activity. The company has frozen hundreds of millions of dollars in USDT over the years, often at government request. But critics argue the process lacks the judicial checks that apply to traditional bank account freezes.
Under the Bank Secrecy Act, financial institutions can freeze accounts at government request, but formal seizure requires a court order. Stablecoins exist in a regulatory gray zone because they are not classified as bank deposits, yet function similarly as a store of value and medium of exchange.
Tether announced in September 2025 that it would voluntarily freeze wallets flagged by law enforcement within 24 hours of receiving a request, as part of a broader compliance overhaul. The October 2025 freeze described in this lawsuit came shortly after that policy shift, raising questions about whether the new compliance posture may have gone too far without adequate legal safeguards.
Industry Implications
The case could set a precedent for how stablecoin issuers handle freeze requests. If the court rules that Tether acted without sufficient legal basis, it may force the company and its competitors to demand formal warrants before blacklisting wallets, slowing cooperation with law enforcement.
Tether currently backs roughly $115 billion in USDT with reserves including U.S. Treasury bills, overnight repos, and other liquid assets. Freezing tokens does not reduce the reserve, but it does prevent the token holder from redeeming or transferring them, effectively freezing the economic value tied to those reserves.
The lawsuit adds to a growing body of legal challenges against stablecoin issuers. Tether has previously faced questions about its freeze practices from privacy advocates and from crypto users in countries with restrictive governments. This case, however, involves a direct challenge from American court jurisdiction, with the plaintiffs represented by counsel familiar with SDNY litigation.
The case is Rukthammachalern and Kasamvilas v. Tether, et al., U.S. District Court for the Southern District of New York.
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