Tether is facing a lawsuit in the Southern District of New York over the freeze of $42.4 million in USDT belonging to two Thai businessmen, Nutthawat Rukthammachalern and Natthawat Kasamvilas.

The plaintiffs allege that Tether blacklisted their Ethereum addresses in late October 2025 after receiving an informal request from an agent with the US Department of Homeland Security (HSI). A total of 42.4 million USDT was frozen. According to the businessmen, the stablecoin issuer took the action without a warrant, court order, or notice to them.

Funds Linked to Pig-Butchering Investigation

According to an update from Attorney Ariel Givner, the funds appear to be connected to an HSI Raleigh investigation into a pig-butchering case. The investigation began after a victim tip involving romance and investment fraud, a fake trading platform, and the movement of stolen USDT through multiple wallets in an effort to make the funds appear clean.

One of the wallets linked to the plaintiffs held about $26.1 million and had already been identified as a consolidation address in an “accumulate, layer, integrate” flow.

A warrant came later. On February 19, 2026, the Eastern District of North Carolina issued warrant 5:26-MJ-1267-JG, directing Tether to burn the frozen USDT and remint the tokens to a government wallet. Five days later, EDNC and HSI announced a $61 million USDT seizure traced to addresses allegedly associated with laundering proceeds stolen from pig-butchering victims. Tether was publicly thanked for carrying out the transfer.

The lawsuit, however, does not dispute the government’s claim that the funds are connected to scam proceeds. Instead, the plaintiffs have challenged Tether’s authority to freeze, burn, and reissue USDT that they say was purchased on the secondary market. The duo argued,

“Defendants are profiting directly from the freeze itself. Defendants use the actual U.S. dollars they receive when they mint USDT to purchase interest-bearing financial instruments, predominantly United States Treasury securities custodied in New York.”

Their claims include declaratory judgment, conversion, trespass to chattels, unjust enrichment, and injunctive relief. The duo is seeking to lift the freeze, damages if the tokens are destroyed, repayment of reserve interest earned during the freeze, and punitive damages.

Tether Defends Law Enforcement Role

The stablecoin issuer has defended the freeze. In a statement to CryptoPotato, the stablecoin issuer said,

“The new lawsuit against Tether is a baseless attempt to interfere with Tether’s important work with global law enforcement, including the Department of Justice, to prevent the unlawful use of USDT.”

Source: CryptoPotato