On October 30, 2025, Tether blacklisted 10 Ethereum addresses holding over 42.4 million USDT. The mechanism was standard: an execution of the smart contract‘s addBlackList function. The legal justification, however, arrived significantly later. It was not until February 19, 2026, that a magistrate judge in the Eastern District of North Carolina issued a seizure warrant. That four-month interval between the initial freeze and the formal judicial authorization serves as the primary friction point in Rukthammachalern & Kasamvilas v. Tether, a case filed in the Southern District of New York on August 31, 2026.
The plaintiffs, two Thai businessmen, allege that Tether acted solely on an informal request from a Homeland Security Investigations agent. They contend that at the time of the freeze, there was no warrant, subpoena, or court order in place. The plaintiffs emphasize that they had no direct customer relationship with Tether, having acquired the tokens through secondary-market transactions. They are now seeking the removal of the blacklist, an injunction against the burning of their tokens—a process Tether can initiate via its destroyBlackFunds function—and damages for the loss of use of their assets.
Section 2(16) of the GENIUS Act defines a ‘lawful order’ as one issued by a court of competent jurisdiction or an authorized federal agency, specifying accounts with reasonable particularity and subject to judicial or administrative review. The plaintiffs argue that an informal request from law enforcement fails to meet these criteria. If the court determines that informal requests fall short of the ‘lawful order’ threshold, the industry’s current model of ‘cooperative’ freezing could face significant regulatory headwinds.
Tether’s scale of intervention is substantial. According to data from BlockSec, the issuer has frozen over $4.2 billion in cumulative assets across more than 4,000 addresses. In 2025 alone, $1.26 billion was frozen. For secondary-market participants, the disposition of these funds is particularly relevant: 55.6% of the frozen total, or roughly $698.42 million, has been destroyed. With only a 3.6% unfreeze rate, the stakes for holders caught in these blacklists are high.
The legal question remains whether a private issuer possesses the discretion to freeze tokens based on informal requests, and whether a subsequent warrant can retroactively validate an action taken months prior. Tether has not yet provided a public response to the allegations. Meanwhile, the plaintiffs have initiated a parallel return-of-property application in North Carolina, filed on July 31, 2026, which remains pending alongside the SDNY case.
For DeFi builders and institutional participants, the case highlights the tension between the technological capability to freeze assets and the legal mandate to do so. Section 4(a)(6)(B) of the GENIUS Act requires issuers to have the capability to comply with lawful orders, but it does not explicitly grant them the authority to act as an arm of law enforcement in the absence of one. As the proceedings move forward, the court’s interpretation of these definitions will likely dictate whether the ‘issuer-as-gatekeeper’ model remains a flexible tool for law enforcement or becomes a strictly defined, court-sanctioned process.