Tether is charged in New York for freezing $42.4 million USDT wallet, and its legal authority is que

Two Thai businessmen sue Tether to unfreeze 42.4 million USDT tokens

Two Thai businessmen, Nutthawat Rukthammachalern and Natthawat Kasamvilas, have filed a lawsuit in the U.S. District Court for the Southern District of New York, demanding that Tether return approximately 42.4 million USDT tokens still frozen on the Ethereum blockchain.

Background of the controversy

Tether, known for issuing the largest U.S. dollar anchored stablecoins, blacklisted 10 Ethereum wallets through smart contract functions on October 30, 2025. These wallets hold a total of 42,417,785.62 USDTs. The plaintiff alleges that the action was carried out at the informal request of a Homeland Security Investigation agent and did not obtain a legal warrant, court order or subpoena.

According to Rukthammachalern and Kasamvilas, they realized the funds were frozen only after a transaction failed. When they contacted Tether about the matter, the company did not provide details of the legal basis for the operation, but referred them to the email address of a Homeland Security Investigation agent.

The plaintiffs maintained that they obtained the tokens through legal secondary market transactions and emphasized that they had never established a direct account relationship with Tether Company. They believe that Tether's ability to technically control smart contracts does not amount to legal ownership or disposal of tokens held by users.

(Note: Tether is the issuer of USDT, which is the largest U.S. dollar anchored stablecoin. Tether maintains the value of USDT by holding reserves and regularly works with law enforcement to conduct blockchain-based investigations.)

Tether activated its smart contract blacklist tool after a request from the Homeland Security Investigation Bureau, but Rukthammachalern and Kasamvilas argued that there was no formal legal process to support the freeze at the time.

Seizure Orders and Continuing Freezing

On February 19, 2026, a North Carolina magistrate issued a seizure order instructing Tether to destroy USDTs held at marked addresses and reissue them into government-controlled wallets. A few days later, prosecutors announced the seizure of more than $61 million in USDT related to investment fraud cases, including commonly known as "pig killing trays."

Despite the seizure notice, the lawsuit states that as of the date of filing the lawsuit, the specific 42.4 million USDTs related to the two Thai businessmen had not been transferred to the government purse. The plaintiffs claimed that a subsequent seizure order issued in February could not retroactively legalize Tether's initial freeze in October.

Timeline:

October 30, 2025-Wallet was frozen involving 42,417,785.62 USDTs based on the Homeland Security Investigation Bureau (informal request)

February 19, 2026-A seizure order was issued involving more than US$61 million, Issued by a magistrate

February 24, 2026- USDT seized (total amount), exceeding US$61 million, executed by federal prosecutors

July 31, 2026-Request for additional return of unspecified amount is filed, processed by the North Carolina State Court

Prosecutors linked the wallets to investment fraud and said the case began with a victim's report and investigators then tracked the flow of funds through multiple addresses designed to confuse the source of the funds.

Legal Argument and Industry Background

The plaintiff sought an injunction requiring Tether to remove the blacklist from its wallet, return the tokens that still exist, or compensate the corresponding value of the USDT if the tokens have been destroyed or reissued. They also demanded damages for any proceeds generated by the frozen funds.

Their core argument questions whether it is legal for stablecoin issuers to freeze assets based solely on informal requests from law enforcement agencies in the absence of judicial review.

As of September 2, Tether has not publicly responded to the complaint. The lawsuit alleges Tether constitutes embezzlement, unlawful interference with movable property, and unjust enrichment.

Tether has reportedly frozen huge amounts of funds before, including freezing $514 million in 370 addresses in a single month in early 2026. This model has sparked broader discussions in industry and the legal community about how much discretion companies have in freezing or seizing digital assets.

In addition, the plaintiffs told the New York court that they had filed a request for funds recovery in a North Carolina court on July 31, but the application had not yet been ruled.