Tether Froze $2.76M of a Payments Firm's Operating Capital for a Year
Conduit Technology filed suit in SDNY on October 5, 2026, alleging Tether froze its $2.76M operating wallet for over a year with no court order and no compliance connection to Conduit itself.
A new SDNY lawsuit exposes the unilateral freeze power baked into every custodial stablecoin.
Key takeaways
- Cross-border payments firm Conduit Technology filed suit against four Tether entities in SDNY on October 5, 2026, alleging Tether froze $2.76 million in USDT from its operating wallet on September 24, 2025, without a court order or any explanation.
- Brazilian authorities confirmed they never flagged Conduit's treasury wallet, and a Brazilian court confirmed Conduit was not under investigation in the underlying case, yet the freeze has held for more than a year while Tether reportedly continues earning yield on the locked reserves.
- This is the second USDT-freeze lawsuit filed in SDNY in five weeks, following a $42.4M suit by two Thai businessmen, forming a pattern that puts Tether's internal T3 Financial Crime Unit and its unilateral freeze authority directly in front of federal judges.
Cross-border payments firm Conduit Technology Inc. sued four Tether entities in the U.S. District Court for the Southern District of New York on October 5, 2026, alleging the USDT issuer froze $2.76 million in operating capital on September 24, 2025, and has not unlocked it in over a year, according to the complaint first reported by The Block. The filing describes the frozen wallet as the "equivalent of [Conduit's] operating bank account" and states flatly: "Conduit owes no money to Tether and has no obligation to Tether."
The complaint, accessible via OffshoreAlert's case page, names Tether Holdings S.A. de C.V., Tether International S.A. de C.V., Tether Operations S.A. de C.V., and Tether Investiments S.A. de C.V. as defendants. Conduit is represented by Baker Botts attorney Karan Singh Dhadialla. Tether had not publicly responded as of October 6, 2026.
The Freeze Had No Legal Nexus to Conduit
Tether's T3 Financial Crime Unit executed the freeze in connection with a Brazilian Federal Police investigation involving Onix Intermediações, a former Conduit customer. The problem: Onix last used Conduit's platform in April 2025, roughly one month before Conduit's treasury wallet was even created on May 20, 2025. The wallet never held Onix funds.
Brazilian law enforcement confirmed it never flagged Conduit's treasury wallet. A Brazilian court confirmed Conduit was not under investigation in the Onix case. No court order directed Tether to freeze Conduit's wallet. Conduit received no advance notice and has had no path to recourse short of federal litigation.
The relief sought in the complaint covers four categories: a declaratory judgment that Tether lacks legal authority to freeze; a court order to unfreeze immediately; compensatory damages of at least $2.76 million; and consequential damages including the profits Tether has earned on the reserves backing the frozen tokens. The total damages exposure implied in the filing runs to at least $5.52 million before reserve profits are counted.
A Revocable IOU Is Not Operating Capital
The "operating bank account" framing in the complaint is the tell. Businesses holding USDT as working capital are not holding sound money. They are holding a revocable IOU from a private company that can switch them off at any moment, for any reason or no stated reason, with no appeals process except a federal lawsuit. That is a bank account. A worse bank account, with no FDIC backstop, no regulatory appeals window, and no mandatory notice requirement.
The interest angle compounds the problem. While Conduit has been locked out of its operating capital for over a year, Tether has reportedly continued earning yield on the Treasury and money-market reserves backing those frozen tokens. The victim absorbs the full downside of the freeze; the issuer keeps the float income. That is a damages theory Conduit presses explicitly in its complaint, and it is one federal judges will have to rule on.
This is not an isolated incident. In late August 2026, two Thai businessmen filed suit in SDNY alleging Tether froze $42.4 million on an informal HSI request, with the warrant arriving only later. Two SDNY suits in five weeks, both targeting T3's unilateral freeze power, both alleging action without a valid legal order tied to the specific wallets frozen. The pattern is the story.
The only stablecoin that cannot be frozen is bitcoin held in self-custody. There is no T3 unit. There is no phone call from a federal agent that locks a treasury wallet. The Fed's proposed stablecoin reserve rules under the GENIUS Act are unlikely to touch the freeze-power question at all, since that authority flows from Tether's own terms of service, not from any statute a regulator can rewrite.
What to Watch
The threshold question in Conduit Technology Inc. v. Tether Holdings S.A. de C.V. et al is whether Tether can produce a valid legal order specifically directing the freeze of Conduit's wallet. If it can, this is a compliance dispute. If it cannot, a federal court will be asked to rule on whether a private stablecoin issuer has the unilateral contractual right to freeze a business's operating capital indefinitely with no process. That ruling, if it comes, will reach every company holding USDT as treasury.
Sources
- Conduit Technology Inc. v. Tether Holdings S.A. de C.V. et al, complaint (OffshoreAlert case page)
- First reported by The Block, October 6, 2026
Frequently Asked Questions
Can Tether legally freeze USDT without a court order?
Tether's freeze authority derives from its own terms of service, which include a blacklist function that allows the company to disable specific wallets. It is a private-contract power, not a statutory law-enforcement power. No U.S. law requires Tether to obtain a court order before freezing tokens. Conduit's declaratory judgment claim puts that contractual authority directly in front of a federal judge, asking the court to rule on whether that power has limits.
What is Tether's T3 Financial Crime Unit?
T3 is Tether's internal compliance arm, operated in partnership with blockchain analytics firms to identify wallets allegedly linked to financial crime. It has no independent law-enforcement authority under U.S. or international law. Both the Conduit case and the Thai businessmen's $42.4M suit contest whether T3 acted on valid legal directives or simply on informal requests and its own judgment, without external process.
What happens to the interest Tether earns on frozen USDT reserves?
Tether backs its USDT with Treasury bills and money-market instruments that continue generating yield regardless of whether specific tokens are frozen. Conduit's complaint explicitly claims Tether has been collecting that interest income on the reserves backing the locked $2.76 million throughout the freeze. Conduit is seeking those profits as part of its damages, a theory that, if upheld, would create a financial disincentive for Tether to prolong unexplained freezes.
