Two Thai nationals have filed a lawsuit against Tether in U.S. federal court, alleging the stablecoin issuer froze $42.4 million in USDT without legal authorization, then burned and reissued the tokens to a government-controlled wallet. The case, filed on August 31, 2026, in the U.S. District Court for the Southern District of New York, raises fundamental questions about the limits of stablecoin issuer power and whether secondary-market holders have legal protections when their tokens are immobilized.

What Happened to the Thai Businessmen's USDT?

The plaintiffs, Nutthawat Rukthammachalern and Natthawat Kasamvilas, claim that Tether activated its smart-contract blacklist function on October 30, 2025, freezing 42,417,785.62 USDT held in their Ethereum wallets. According to the complaint, this freeze came after an informal request from a Homeland Security Investigations (HSI) agent but was not backed by a warrant, court order, or any other legal process at that time.

The plaintiffs say they received no prior notice of the freeze. When one of them emailed Tether in early November 2025 asking why the funds were locked, the company reportedly directed him to an HSI special agent instead of providing an explanation. More than three months later, on February 19, 2026, the U.S. Attorney's Office for the Eastern District of North Carolina secured a seizure warrant in magistrate case 5:26-MJ-1267-JG. According to the complaint, this warrant instructed Tether International to burn the frozen USDT and mint an equivalent amount into a wallet controlled by the government.

Why Does This Case Matter for Stablecoin Users?

The lawsuit centers on a narrower but significant legal claim: the plaintiffs argue that Tether exercised its freeze and burn powers against secondary-market holders who had no direct contractual relationship with the issuer. They contend they are not parties to Tether's terms of service and that the February 2026 warrant did not retroactively authorize the October 2025 freeze or any subsequent burn and reissue of tokens.

The complaint also raises an unjust enrichment claim, alleging that Tether continued to earn yield on Treasuries and other reserve assets backing the frozen tokens throughout the period they remained immobilized. This means Tether was generating returns on assets that theoretically belonged to the plaintiffs, even while their tokens were locked.

The core legal question is whether such a sequence of actions can be lawful before a court of competent jurisdiction issues an order authorizing them. This distinction matters because it sets a precedent for how much unilateral power stablecoin issuers can exercise over token holders who are not their direct customers.

How to Understand the Legal Claims in This Case

• Unauthorized Freeze: The plaintiffs claim Tether froze their tokens on October 30, 2025, based only on an informal HSI request, without a warrant or court order at that time, violating their property rights.
• Conversion and Trespass: The complaint alleges that burning and reissuing the tokens to a government wallet constitutes conversion (unauthorized taking of property) and trespass to chattels (interference with personal property), both recognized legal torts.
• Unjust Enrichment: Tether allegedly earned yield on reserve assets backing the frozen tokens for months, enriching itself at the plaintiffs' expense without authorization or compensation.
• Lack of Contractual Privity: The plaintiffs argue they acquired USDT on the secondary market and are not bound by Tether's terms of service, meaning Tether has no contractual right to freeze or burn their tokens unilaterally.

The plaintiffs are seeking a declaration that the freeze and burn are unauthorized, compensatory damages, disgorgement of interest earned on reserve assets, punitive damages, and an injunction requiring Tether to un-blacklist their wallets and halt any burn.

What Was the Government's Investigation About?

Five days after the February 19 warrant was issued, the U.S. Attorney's Office for the Eastern District of North Carolina publicly announced on February 24, 2026, that federal agents had seized more than $61 million in USDT. Prosecutors said investigators traced the funds to wallet addresses allegedly used to launder proceeds from cryptocurrency investment scams commonly known as pig butchering schemes, in which fraudsters pose as romantic interests or business partners to convince victims to invest in fake cryptocurrency opportunities.

HSI Raleigh said the case originated from a victim tip. Agents followed the funds through a series of wallets and identified addresses that still held significant balances. The Department of Justice publicly credited Tether for its assistance in transferring the assets. Tether issued its own statement on February 25, 2026, saying it had been recognized by the DOJ for helping recover close to $61 million in USDT.

However, the new lawsuit treats the North Carolina investigation as background context rather than a settled finding against the two Thai plaintiffs. The filing states that the plaintiffs have separately sought the return of their tokens in the Eastern District of North Carolina and that the New York action is independent of that proceeding.

How Much Power Do Stablecoin Issuers Actually Have?

Tether has the ability to freeze or destroy USDT at any address it blacklists through contract-level controls, a function that is well known among compliance teams and law enforcement agencies. The company has repeatedly stated that it cooperates with agencies around the world and has frozen billions of dollars worth of tokens linked to alleged illicit activity.

This case is not the first legal challenge of its kind to reach the courts. A separate U.S. in rem action (a lawsuit targeting property rather than named individuals) was filed earlier in 2026 seeking the forfeiture of USDT alleged to be pig butchering proceeds, targeting token balances rather than specific account holders.

Tether has not yet filed a response in the new Southern District of New York docket. No judge has ruled on the freeze, the warrant, or the requested injunction. The outcome of this case could establish important precedent for how much unilateral control stablecoin issuers can exercise and whether secondary-market holders have legal recourse when their tokens are frozen or destroyed.