Tether Faces Lawsuit Over Year-Long USDT Freeze
TREE NEWS reports: Cross-border payment firm Conduit has filed a lawsuit against Tether in the U.S. District Court for the Southern District of New York, alleging the stablecoin issuer froze $2.76 million of its operating funds without legal justification and has refused to unfreeze the assets for more than a year.
Tether froze Conduit’s treasury wallet — effectively the digital equivalent of a corporate operating bank account — on September 24, 2025. The company says the wallet, created in May 2025, processed over $1.1 billion in transaction volume in roughly four months before being locked. Conduit claims the liquidity shock forced layoffs and office closures.
The Dispute at the Center
The freeze stemmed from a Brazilian federal police investigation into entities tied to a company called Onix, which had used Conduit’s platform. Conduit argues the frozen wallet was created almost a month after Onix’s final transaction on its platform and never held any Onix funds. The company says Brazilian authorities confirmed they never flagged the wallet and that Tether’s own T3 financial crimes unit independently made the decision.
The lawsuit raises claims of conversion, unjust enrichment, breach of fiduciary duty, and computer fraud, and seeks the return of funds. Conduit also alleges Tether continued earning interest from the U.S. Treasury securities backing the frozen tokens, “harvesting the financial rewards of the freeze at no cost.”
Growing Scrutiny of Freeze Powers
The case intensifies broader scrutiny of Tether’s authority to unilaterally freeze USDT. Tether has frozen hundreds of millions of tokens flagged as linked to illicit activity, and faces a separate lawsuit over a $42.4 million freeze. It recently joined Circle in freezing funds tied to a Bitget hack.
Yet Tether simultaneously faces political pressure for not freezing enough. Senator Richard Blumenthal recently called USDT a “highway” for sanctions evasion, pointing to Iranian usage. The contradictory pressures — criticized both for freezing and for failing to freeze — highlight the inherent tension in giving a private issuer control over the lifeblood of dollar-denominated digital finance.
Forward-Looking Perspective
This lawsuit could become a landmark test of how much discretion stablecoin issuers should wield over user funds. If courts require issuers to demonstrate concrete legal grounds before freezing assets, it could reshape compliance practices across the stablecoin sector. Conversely, a ruling favoring Tether may accelerate calls for regulated, transparent freeze mechanisms — or push enterprises toward alternative settlement rails. As tokenized dollar rails grow, the question of who can pull the plug — and under what standard — will only become more consequential.
