By Cross-border payments company Conduit Technology has sued Tether after spending more than a year without access to approximately $2.76 million in USDT held in a corporate treasury wallet, arguing that the stablecoin issuer froze the funds without a court order or a request from the Brazilian police investigation linked to the action.
The complaint, filed Oct. 5 in the U.S. District Court for the Southern District of New York, names Tether Holdings, Tether International, Tether Operations and Tether Investments. Conduit is seeking an order restoring access to the USDT, compensatory damages of at least $2.76 million, additional consequential and punitive damages, and disgorgement of income allegedly earned on reserves backing the frozen tokens.
Tether had not publicly responded to the allegations as of Oct. 6. The claims are at the complaint stage and have not been adjudicated.
Why Does Conduit Say the Brazilian Investigation Did Not Justify the Freeze?
The dispute traces back to a Brazilian Federal Police investigation involving Bull Intermediação de Negócios and Onix Intermediações, which had previously used Conduit’s platform.
Conduit alleges its treasury wallet was never identified by Brazilian police as one of the addresses to be frozen. According to the complaint, police identified a group of suspected wallets and shared them with Tether’s T3 Financial Crime Unit, after which T3 applied its own criteria to determine which additional wallets should be restricted.
Conduit says its wallet was among those identified by Tether independently. It also alleges that a Brazilian court confirmed Conduit was neither an investigated party nor among the companies whose assets had been ordered frozen.
Timing is central to Conduit’s argument. Onix’s last transaction on the platform allegedly occurred on April 22, 2025, while the treasury wallet was not created until May 20. Conduit says the wallet subsequently processed 4,427 transactions involving 78 counterparties and more than $1.1 billion in volume before the September freeze, with none involving Onix.
Tether has increasingly used issuer-level controls to immobilize USDT addresses. FinanceFeeds recently reported on a $3.75 million blacklist wave across 18 USDT addresses, while stressing that a wallet freeze alone does not establish criminal ownership or misconduct.
Investor Takeaway
The factual question is not whether Tether can technically freeze USDT; it clearly can. The dispute is over when that power can lawfully be exercised against a holder that says neither it nor its wallet was targeted by law enforcement.
Why Could the Case Matter Beyond $2.76 Million?
Conduit’s wallet was held through a Fireblocks institutional custody account, and the company says only its own treasury employees possessed signing authority. Yet the USDT still became non-transferable because Tether controls administrative functions at the token level.
That distinction matters for businesses treating stablecoins as operational cash. Private-key control protects a wallet from unauthorized signing, but it does not necessarily prevent the issuer of a centralized stablecoin from restricting the token itself.
The issue has become increasingly relevant as USDT moves deeper into payments. FinanceFeeds reported that USDT accounted for about $95 billion in identified commerce payments during the first half of 2026, with particularly strong use in business-to-business and cross-border transfers.
For payment companies that use stablecoins to pre-fund corridors and settle client transactions, an issuer freeze can therefore become a liquidity event rather than merely a compliance inconvenience. Conduit alleges the lost working capital reduced its ability to settle transactions at previous speed and volume and contributed to layoffs and office closures.
Investor Takeaway
The case exposes a treasury-management risk for companies holding material operating capital in centralized stablecoins: self-custody does not eliminate issuer intervention risk. Diversification across banks, stablecoin issuers and settlement rails may therefore matter as much as wallet security.
What Exactly Is Conduit Asking the Court to Decide?
The lawsuit goes beyond a straightforward demand for the tokens to be unfrozen. Conduit brings claims including conversion, unjust enrichment, breach of fiduciary duty and a claim under the federal Computer Fraud and Abuse Act, alongside requests for declaratory relief and an accounting.
The computer-fraud argument is particularly notable. Conduit alleges Tether used its administrative infrastructure to change the wallet’s status and block USDT transfers without authorization. Whether a court accepts that interpretation could have consequences for how issuer-controlled blockchain functions are treated under existing federal law.
Conduit also argues that Tether continued earning income from the reserve assets backing the frozen USDT. It wants an accounting and disgorgement of interest, income and profits attributable to those reserves in addition to restoring the $2.76 million and awarding at least another $2.76 million in compensatory damages.
Tether’s freezing capabilities are normally presented as a compliance advantage. Its T3 initiative with Tron and TRM Labs has expanded rapidly, with FinanceFeeds reporting that the T3 Financial Crime Unit had frozen $300 million linked to illicit activity by late 2025. More recently, Tether said it had frozen nearly $550 million in Iran-linked USDT during 2026 at the direction of U.S. authorities.
Investor Takeaway
A ruling will matter most if the court reaches the boundaries of Tether’s freeze authority rather than resolving the case on narrower procedural grounds. A decision defining when issuer-level controls can be used without a direct government order could affect compliance practices across centralized stablecoins.