Cross-Border Payments Firm Conduit Sues Tether Over Disputed $2.76 Million Freeze

Cross-border payments infrastructure provider Conduit has taken legal action against stablecoin giant Tether, alleging that the company unjustifiably froze $2.76 million of its corporate funds and has refused to release them for more than a year.

In a lawsuit filed on Monday in the U.S. District Court for the Southern District of New York, Conduit asserts that Tether targeted its core treasury wallet—the digital equivalent of a traditional operating bank account—on September 24, 2025. According to the legal complaint, the stablecoin issuer has kept these funds locked indefinitely while allegedly continuing to profit from the underlying U.S. Treasury securities that back the frozen digital assets.

The lawsuit brings forward multiple severe claims against Tether, including conversion, unjust enrichment, breach of fiduciary duty, and computer fraud. Conduit is demanding the immediate return of its capital alongside a formal resolution to a dispute that the cross-border firm claims has severely crippled its ongoing business operations.

At the epicenter of the legal conflict is a foreign law enforcement investigation in Brazil that Conduit insists has entirely nothing to do with its business practices. According to the detailed court filings, Brazilian Federal Police had initiated a probe targeting corporate entities associated with a firm named Onix. This firm had previously utilized Conduit’s payment platform to process financial transactions.

However, Conduit maintains that the frozen treasury wallet in question was not even created until May 2025, which was nearly a full month after Onix completed its final transaction on the platform. The payment provider emphasizes that its frozen wallet never held any funds originating from or connected to Onix. Furthermore, Conduit notes that Brazilian Federal Police investigators confirmed they never flagged the specific wallet and expressed confusion regarding the criteria Tether utilized to implement the freeze. The plaintiff points directly to Tether’s proprietary T3 Financial Crime Unit, arguing that the internal enforcement body made the asset-locking decision independently and without verifiable justification.

The financial and operational fallout from the prolonged asset freeze has been devastating for the growing payments company. Conduit reports that before the wallet was locked by Tether, the address had successfully processed more than $1.1 billion in transaction volume across a span of roughly four months. The sudden and sustained loss of liquidity has dealt a severe blow to the firm’s balance sheet, forcing management to implement painful cost-cutting measures, including employee layoffs and the closure of physical offices.

Compounding the frustration, Conduit contends that Tether has effectively weaponized the freeze for its own financial benefit. The stablecoin issuer continues to earn interest on the U.S. Treasury securities and other reserve assets backing the frozen USDT tokens. By keeping the funds in a state of perpetual limbo, Conduit argues that Tether is reaping the financial rewards of the reserves at absolutely no operational cost to itself.

This high-stakes legal confrontation contributes to a growing wave of public and judicial scrutiny surrounding Tether’s sweeping discretionary powers to freeze USDT tokens across various public blockchains at will.

The current case follows closely behind a separate lawsuit filed earlier this year, in which Tether was targeted over the contentious freeze of $42.4 million in USDT. Over the course of its operations, Tether has routinely frozen hundreds of millions of dollars worth of stablecoins that compliance algorithms and law enforcement agencies have flagged for suspected illicit activity. In another recent enforcement action, Tether joined forces with rival stablecoin issuer Circle to freeze digital assets directly linked to a major exploit involving the Bitget cryptocurrency exchange.

Paradoxically, while Tether faces sharp legal pushback from companies caught in its compliance sweeps, the issuer simultaneously encounters intense political pressure from lawmakers who argue that the company does not do enough to curb illicit finance. Just recently, U.S. Senator Richard Blumenthal publicly criticized Tether, characterizing USDT as a financial "superhighway" designed to facilitate sanctions evasion, specifically drawing attention to the utilization of the stablecoin by entities in Iran. This leaves the stablecoin giant caught in a difficult regulatory crossfire, facing criticism from both sides of the aisle for freezing too aggressively and for not freezing enough.