Cross-border payments firm Conduit has sued stablecoin issuer Tether over a $2.76 million USDT freeze the company says has locked up its main operating account for more than a year. The case arrives as Tether's motives for freezing wallets face mounting scrutiny, with firms and individuals taking the issuer to court over their assets. Because such freezes are carried out by blacklisting wallet addresses, the mounting suits put the issuer's freeze power itself before a judge — including who controls a frozen balance and who keeps the yield it generates.

The complaint was filed on October 5 in the U.S. District Court for the Southern District of New York and names four Tether entities as defendants: Tether Holdings, Tether International, Tether Operations and Tether Investments. Conduit is represented by the law firm Baker Botts.

A frozen operating account

Conduit moves money across more than 100 countries using stablecoins such as Tether's USDT and Circle's USDC. It says the wallet Tether froze served as its operating bank account, meaning the freeze has damaged its business, while Tether continues to earn interest on the Treasury bonds backing the frozen tokens. For payment firms holding working capital in stablecoins, the dispute illustrates the trade-off: the same issuer control that lets Tether lock suspect funds quickly can also immobilize a legitimate business's payments operation.

"Conduit owes no money to Tether and has no obligation to Tether," the complaint reads. Conduit wants the $2.76 million released and is asking for an additional $2.76 million to cover damages, along with the profits it says Tether pocketed on the reserves.

The freeze traces back to a case referred to Brazil's Federal Police involving Onix Intermediações, a company Conduit once served. Conduit's filing points out that law enforcement confirmed it never flagged the firm's treasury wallet, and a Brazilian court found Conduit was not under investigation in the Onix matter. According to the complaint, Onix stopped using Conduit's platform in April 2025 — roughly a month before the treasury wallet was even created — and the wallet never held any of Onix's money. Conduit says Tether has offered no explanation for the freeze and will not lift it.

Tether and TRON operate a joint enforcement arm, the T3 Financial Crime Unit, which has supported Brazilian Federal Police work. In a May statement, Tether said one such effort, Operation Lusocoin, helped freeze more than 3 billion reais in crypto assets, including 4.3 million USDT tied to a criminal network.

Other lawsuits over frozen funds

Conduit's case follows a similar suit filed weeks earlier in the same New York court. On August 31, Thai businessmen Nutthawat Rukthammachalern and Natthawat Kasamvilas sued Tether about $42.4 million in USDT frozen across 10 Ethereum addresses. Their complaint alleges Tether blacklisted the addresses on October 30, 2025, after an informal U.S. law-enforcement request, while a magistrate judge did not sign a seizure warrant until February 19, nearly four months later.

Tether called that suit "a baseless attempt to interfere with Tether's important work with global law enforcement, including the Department of Justice." The company says it cooperates with more than 340 agencies across 65 countries and has helped freeze over $4.4 billion in assets linked to suspected crime.

Tether backs its reserves with interest-bearing instruments, mostly U.S. Treasuries, meaning a frozen wallet costs the company nothing while it keeps collecting yield. Plaintiffs argue this creates a financial incentive to freeze funds and hold them. Given the scale of the issuer's reported freezes, how courts weigh that incentive argument — and whether holders who claim no connection to wrongdoing can recover their balances or the interest on them — is likely to be watched closely across the stablecoin industry.

Regulatory pressure builds

U.S. officials have raised parallel concerns. In February, New York Attorney General Letitia James and Manhattan District Attorney Alvin Bragg told Congress that the GENIUS Act, the federal statute governing payment stablecoin issuers, lets stablecoin firms "profit from fraud" by keeping funds and the interest on them rather than returning money to victims. Separately, a Senate subcommittee led by Richard Blumenthal asked the Treasury Department and the Justice Department on September 28 to investigate Tether's sanctions and anti-money-laundering compliance after finding that 84% of 846 Iran-linked wallets transacted almost entirely in USDT.

Tether's freeze practices — and the yield earned on frozen reserves — are now under examination on two tracks at once: private litigation in Manhattan seeking the release of funds and damages, and a Senate-requested inquiry by Treasury and the Justice Department. Neither has produced an outcome yet.

Source: Cryptopolitan