Tether Froze $2.76 Million No Police Had Flagged. A Second Lawsuit in 5 Weeks Asks Who Runs the Switch

What Happened

Conduit Technology Inc., a Boston-based cross-border payments company that settles client transfers in stablecoins, sued 4 Tether entities on Monday, October 5, in the US District Court for the Southern District of New York. The complaint names Tether Holdings S.A. de C.V., Tether International S.

A. de C.V., Tether Operations S.A. de C.V., and Tether Investments S.A. de C.V. It alleges that on September 24, 2025, Tether blacklisted the address Conduit used as its treasury wallet, freezing its entire balance of $2.76 million in USDT, and that the funds have stayed frozen for more than a year with no court order, no charge, and no explanation Conduit could act on.

Conduit says it opened the wallet, hosted at Fireblocks, in May 2025 as working capital, that it is the 'equivalent of [Conduit's] operating bank account,' and that by the day of the freeze it had handled 4,427 transactions with 78 counterparties and more than $1.1 billion in volume.

'Tether is not allowed to take money from businesses just because they chose to store that money in Tether's currency,' the complaint says. It attributes the freeze to the T3 Financial Crime Unit (T3 FCU), the joint operation Tether runs with the TRON network and the analytics firm TRM Labs.

The reason Tether gave, according to the filing, was a Brazilian Federal Police investigation opened in 2024 into Bull Intermediação de Negócios and Onix Intermediações, which the complaint says share ownership. Onix had been a Conduit customer. Conduit says Onix stopped using its platform in April 2025, about a month before the treasury wallet existed, that the wallet never held Onix funds, and that Tether 'repeatedly' referred it to a contact at the Brazilian police 'with no context.'

The police, the complaint says, confirmed they 'did not identify Conduit's wallet for freezing' and did not know 'what evaluation criteria (if any) led Tether to freeze the funds.' A Brazilian court confirmed Conduit is not under investigation. The suit pleads 6 counts, including conversion, unjust enrichment, breach of fiduciary duty, and violations of federal computer-fraud law.

It asks for a declaration that Tether has no authority to freeze its USDT, an immediate unfreeze, at least $2.76 million in compensatory damages, punitive damages, and any profit Tether earned on the reserves behind the frozen tokens. Conduit says the freeze forced it to lay off staff and close offices.

Tether had not responded publicly as of this writing, and none of the allegations has been adjudicated.

A payments company did what the compliance playbook asks and lost its operating account for a year to a list it cannot read. The switch was built for stolen money; the error path runs through a courthouse.

The Freeze Nobody Requested

This site covered the first Southern District freeze suit on September 3, in 'Tether Froze $42 Million Before Any Warrant Existed. Your Stablecoin Is an IOU With a Switch.' That case, filed August 31 by 2 Thai businessmen, turned on sequencing: Tether froze 10 addresses on an informal ask from a Homeland Security Investigations agent, and a seizure warrant followed more than 3 months later.

The plaintiffs did not dispute that the funds traced to a scam. Conduit's complaint has neither element. On its account the police list that reached Tether named other addresses, not Conduit's, and there was no on-chain trail from the investigation to a wallet that did not exist when Onix was a customer.

What remains is the issuer's own judgment. In the complaint's words, Tether identified the wallet as tied to the Brazilian companies 'on its own initiative using its own criteria.'

That phrase is the case. Tether's terms of service reserve the right to freeze tokens as required by applicable law or where Tether, in its sole discretion, determines it is prudent to do so. The T3 FCU describes its own work as request-driven: freezes within 24 hours of requests from authorities in 23 jurisdictions, more than $450 million immobilized since the unit launched in September 2024.

The question Conduit puts to the court is what governs the switch when no order or request names the wallet: the terms, which Conduit says do not authorize this freeze, or the law of conversion, under which a company holding your dollars and refusing to return them owes them back.

The GENIUS Act, signed in July 2025, requires permitted stablecoin issuers to be able to comply with lawful orders to freeze, seize, or burn tokens, and defines a lawful order as one from a court or an authorized federal agency. It says nothing about freezes an issuer makes on its own criteria.

The Data on Getting Unfrozen

The record on reversals explains why Conduit filed rather than waited. BlockSec, which tracks the USDT contracts on Ethereum and Tron, counted 4,163 addresses blacklisted in 2025 holding $1.26 billion. More than half of that value, $698 million, was later destroyed through the contracts' burn function so that replacement tokens could be issued elsewhere.

3.6% of the addresses were removed from the list, and for those, the median wait was 18.2 days. There is no notice before a freeze and no appeal built into the process; the holder learns when a transfer fails. Conduit's year is 20 times that median. Tether keeps the yield on the reserves behind a frozen balance for as long as it stays frozen, which both the Thai plaintiffs and Conduit have asked the court to disgorge.

The industry's loudest complaint about stablecoin freezes runs the other way. Circle, which says it freezes USDC only on a court order or a formal law-enforcement instruction, is fighting a Wisconsin criminal complaint that accuses it of obstructing a warrant to recover a scam victim's 381,235 USDC.

Tether's speed is the reason its freezes recover money, and much of the T3 FCU's total is victims' funds. The problem Conduit describes is not that Tether froze fast. It is that a process built to catch stolen money in its first hours has no path for a counterparty caught by mistake, so the error-correction mechanism is a federal lawsuit a year later.

A process that reverses 3.6% of its freezes may be right about the rest, or the rest may never have found a lawyer. The data cannot tell the difference.

What This Means for You

Start with what a hardware wallet does and does not do here. It keeps your private keys off the internet, so nobody can spend your USDT without your signature. It does nothing about the blacklist, because the USDT contract checks the issuer's list before it honors your signature.

A frozen address is frozen on a Ledger, a Coldcard, or an exchange alike. Self-custody of a stablecoin is custody of the key, not of the dollar; the dollar sits in Tether's reserves, and the token is a claim the issuer can suspend. The trigger in Conduit's account was not a tainted deposit, which address hygiene can manage, but a past business relationship that Tether's criteria matched to the company, which no wallet practice can.

For anyone running a business on stablecoin rails, Conduit is the stress test. On its own account it had done what the compliance playbook asks: offboarded the customer, opened a fresh treasury wallet afterward, kept it clean. The freeze arrived anyway, and the operating account was gone for a year the company did not have.

Concrete steps: hold operating float across at least 2 issuers with different freeze policies, so 1 blacklist does not stop payroll; keep enough fiat in a bank, or bitcoin behind your own keys, to run the business for the time a federal case takes; find out who at each issuer answers a freeze inquiry before you need to ask; and treat every large stablecoin balance as a position inside another company's discretion, earning that company the reserve yield while you carry the risk.

For individuals the arithmetic is the one this site gave on September 3, and the Conduit facts sharpen it. A stablecoin is a payment rail: hold what you need for transactions in flight. Savings belong in an asset with no issuer to call, the one property of bitcoin behind your own keys that no terms-of-service clause reaches.

That does not remove the freeze risk from the dollar float you need. What the case does is name the variable that decides whether your float is yours: not the chain, not the wallet, but a list, kept by a company, under criteria it has so far declined to explain.

What to Watch

Tether's response is the first checkpoint. A motion to dismiss would likely argue that its terms authorize discretionary freezes and that Conduit's remedy lies in Brazil, and the court's view of whether those terms bind a holder in Conduit's position would carry well beyond $2.76 million.

Watch the Thai case, No. 1:26-cv-07400, which puts the same question to the same courthouse on different facts. Watch for an unfreeze before any ruling, since a release would solve Conduit's liquidity without settling the question. And in the week Conduit filed, the Cardano Foundation said CIP-0113, a standard that lets issuers of regulated tokens freeze, seize, and restrict holdings through rules the ledger enforces on every transfer, is live on mainnet.

The switch Conduit is litigating is becoming a feature other chains advertise.

Tracked entities this report names, with total coverage across the archive. Follow one into the Actor Network to see every report it appears in.

Other reports that name the same tracked actors — a different thread than “related,” which follows wording. These are linked by who appears in them.