Invest2 publishersIndependently confirmed3 min readPublished
Conduit wants a judge to declare Tether's year-long freeze of its USDT working capital unlawful
Conduit sued Tether in New York federal court over $2.76 million in USDT it says Tether's own crime unit froze 376 days before filing. Until a judge rules on whether Tether may do that, firms keeping working capital in USDT have to plan for a lock lasting more than a year.
The Investor · Invest desk
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What happened
- Conduit says the wallet was opened in May 2025, nearly a month after Onix, a firm under Brazilian police investigation, last used its platform, and that it never held Onix funds.
- According to Conduit, Brazil's Federal Police confirmed they never flagged the wallet and do not know what criteria Tether used to freeze it.
- Conduit says losing the frozen liquidity forced it to lay off employees and close offices.
- Conduit asks for a declaratory judgment that Tether has no legal authority to freeze its assets, plus an order to unfreeze the wallet immediately.
- Tether had not responded to the allegations as of Oct. 6, 2026, so none of Conduit's claims has yet been tested in court.
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Why it matters
- cost The holder carries the whole cost of a freeze: Conduit lost the use of its float for over a year while, by its account, the yield on the backing reserves stayed with Tether.
- exposure A payments firm can be pulled into an investigation through a former customer, even, on Conduit's telling, with a wallet that customer never touched.
- precedent A ruling that Tether lacks authority to freeze would bear on every freeze it imposes on its own initiative, including one already in court over $42.4 million.
- decision Treasury teams moving payments through USDT have to decide how much float to leave in one issuer's token, since a balance worth hours of flow can stop the flow itself.
Conduit's wallet moved more than $1.1 billion in roughly four months before the lock [12]. That works out to about $275 million a month, or $9 million a day [20]. Against it, the frozen $2.76 million [2] is about 0.25% of the four-month flow and roughly a third of one day's volume [21]. If that balance was typical, it turned over about 400 times in the period [22]. For a firm moving money at that rate, the cost of a freeze is the balance, or rather the volume the balance could no longer carry. Conduit's damages request is built the same way, with a floor of at least $2.76 million [11] and potential consequential damages on top [8].
On Conduit's account, the issuer pays nothing to hold the position. Conduit contends Tether keeps earning interest on the U.S. Treasury securities behind the frozen tokens, "reaping the financial rewards" of the freeze at no cost to itself [6]. It wants any profits from those reserves handed over [8]. The complaint, as reported, does not put a figure on that interest.
The counts are conversion, unjust enrichment, computer fraud and breach of fiduciary duty [15]. The fiduciary count goes furthest. In effect, it asks the court to treat Tether as owing a duty to the holder of a token it has the power to stop. Conduit names four Tether entities as defendants (Tether Holdings, Tether International, Tether Operations and Tether Investments S.A. de C.V.), and several of them are based outside the US [16].
Conduit says it held the USDT as working capital [9]. In my view the case is good evidence that USDT held this way carries an issuer-discretion risk, and that the risk has a measured duration: 376 days and counting at filing [19]. The counter-case is that the freeze button is a compliance tool Tether gets criticised for using too little. Tether has frozen hundreds of millions of dollars in tokens flagged for illicit activity and recently joined Circle in freezing funds tied to the Bitget hack [17]. Sen. Richard Blumenthal recently called USDT a "superhighway" for sanctions evasion, pointing to Iran's use of the token [18]. The pressure on Tether is to freeze more, and a firm one customer removed from a police case sits inside that net.
If Tether's response shows a police or court request behind the freeze, Conduit's account of a decision made on its own by Tether's T3 Financial Crime Unit [3] fails. The risk would then be ordinary legal process, the same kind a bank account carries, and that result would prove this view wrong. If Tether instead releases the funds and settles, Conduit gets its principal back more than a year late and the question of Tether's authority stays open.
What to watch
- How the Southern District of New York treats the Tether defendants based outside the US; a jurisdiction ruling decides whether the authority question gets argued at all.
- The separate suit over Tether's $42.4 million freeze, a second test of the same power at about 15 times Conduit's sum.