Conduit Technology dragged Tether to the US District Court for the Southern District of New York on Monday, October 6, 2026. The cross-border payments firm is challenging the unilateral freeze of $2.76 million in USDT, which has been locked since September 24, 2025.
Conduit created the wallet holding the USDT in May 2025. Within four months, the wallet processed over $1.1 billion in transaction volume before Tether ultimately froze it.
The multi-million-dollar fund freeze reportedly did not come from any law enforcement warrant.
Allegations of Freezing Funds Without Police Orders
Tether’s move to freeze the funds stemmed entirely from an initiative by its internal division, the T3 Financial Crime Unit. Conduit stated that Brazilian federal police confirmed law enforcement authorities never targeted or flagged Conduit’s wallet.
Brazilian federal police did launch an investigation in 2024 into entities named Bull Intermediação de Negócios and Onix. However, Onix’s last recorded transaction on Conduit’s platform took place a full month before Conduit deployed the wallet currently frozen by Tether.
Citing this timeline discrepancy, Conduit accused Tether of four claims: conversion, unjust enrichment, breach of fiduciary duty, and computer fraud.
Who Earns the Interest on Frozen Assets?
The lawsuit reveals a lucrative financial angle for the stablecoin issuer behind every USDT freeze. Conduit alleges that Tether continues to earn interest on the US Treasury Securities backing the frozen tokens. This arrangement allows Tether to harvest financial gains without shouldering any operating costs associated with Conduit’s funds.
With operational assets trapped for more than a year, Conduit’s business took a severe hit. The company claims it was forced to lay off employees and shut down its offices as a direct consequence of the freeze.
Not the First Asset Freeze Lawsuit This Year
Conduit’s legal action marks the second case bringing Tether to court throughout 2026 over similar issues. Previously, two Thai nationals filed a lawsuit against the firm over the withholding of $42.4 million in assets. Beyond the T3 Financial Crime Unit’s initiatives, Tether has a history of locking flagged wallets, including partnering with Circle to freeze funds linked to the Bitget exchange exploit.
These proactive compliance efforts are now complicating Tether’s legal standing. When a financial crime division freezes assets without formal directives from official authorities, it faces the immediate risk of damages claims from legitimate users whose businesses were destroyed in the process.
Sourced from Cointelegraph.
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Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
