Cross-border payments firm Conduit has sued Tether in the Southern District of New York, alleging the USDT issuer froze $2.76 million of its funds without explanation and has refused to release them for more than a year.

The complaint, filed Monday, seeks the return of the frozen USDT plus at least $2.76 million in additional damages — including profits Conduit says Tether has earned on the reserves backing the blocked tokens.

"Conduit owes no money to Tether and has no obligation to Tether," the filing states. Conduit alleges Tether has given no reason for the freeze and no path to recovering the funds.

What is Conduit claiming?

Conduit uses stablecoins, including Tether's USDT and Circle's USDC, to move money across more than 100 countries. According to the filing, the frozen wallet served as the "equivalent of [Conduit's] operating bank account" — the operational backbone of its treasury.

The freeze allegedly traces back to an investigation referred to the Brazilian Federal Police involving Onix Intermediações, a former Conduit customer. Conduit's core argument is that the connection is groundless:

• Brazilian law enforcement confirmed it never flagged Conduit's treasury wallet for freezing, according to the filing.
• A Brazilian court confirmed Conduit is not under investigation in the Onix case.
• Onix stopped using Conduit's platform in April 2025, roughly a month before the treasury wallet was created.
• The wallet never held any Onix funds, Conduit says.

What are the business consequences?

Because Tether locked the wallet that supported day-to-day operations, Conduit says its business has suffered operational disruption across its payments infrastructure. The suit also raises an economic complaint: Tether continues to collect interest on the dollar reserves backing the frozen USDT while Conduit remains locked out.

The damages claim doubles down on that point. Conduit wants the $2.76 million released, plus another $2.76 million covering damages and the reserve profits it attributes to Tether during the freeze period.

The case tests a structural question for stablecoin issuers: whether freezing a customer's tokens at issuer discretion — without a direct law-enforcement order against that customer — carries legal exposure. USDT operates as a fiat-backed token redeemable through Tether, giving the issuer unilateral technical control over any address it blacklists. For payments firms that route treasury operations through stablecoins, that control represents a single point of operational failure.

Who else does this affect?

The dispute carries implications beyond the two companies. Stablecoin-based payments businesses depend on issuers' willingness to keep treasury wallets liquid. If freezes can persist for more than a year without a documented enforcement request naming the wallet holder, corporate treasurers may reconsider how much operational capital they hold in issuer-controlled tokens rather than in bank accounts or multi-issuer arrangements.

Tether has faced criticism before over freeze practices tied to law-enforcement requests, but this case is distinct: Conduit claims the underlying authority — Brazilian police — never sought the freeze at all, removing the usual justification for issuer intervention.

The Southern District of New York, a frequent venue for crypto litigation, will now weigh whether an issuer must show a legal basis for a prolonged freeze and whether it can retain reserve yield on blocked funds. A scheduling order and Tether's response are the next procedural milestones; the outcome could shape how payments firms structure stablecoin treasury exposure across the industry.