A lawyer representing victims of Iranian-backed terrorism filed a lawsuit Monday in Manhattan federal court seeking to force Tether to transfer 344,149,759 USDT—roughly $344 million—frozen at two Tron wallet addresses. The wallets were designated by the Office of Foreign Assets Control as belonging to Iran's Islamic Revolutionary Guard Corps.
The lawsuit's demands
Attorney Charles Gerstein, who filed the claim in the Southern District of New York, wants the court to compel Tether to zero out the blocked wallets and reissue an equivalent amount of USDT to a wallet controlled by his clients' legal team. The plaintiffs hold billions of dollars in unpaid U.S. court judgments linked to Iranian-backed terrorism.
This case expands Gerstein's earlier litigation targeting frozen funds in a North Korea-linked Arbitrum case, as well as separate claims against Railgun DAO. The new filing directly challenges how stablecoin issuers handle assets flagged under U.S. sanctions.
Tether's freeze powers
Tether has the technical ability to freeze wallets, blacklist addresses, zero out balances, and reissue tokens to a different destination. The company says it has frozen $4.2 billion in USDT across more than 5,000 wallets tied to criminal activity. It also assisted the Department of Justice in seizing over $6 million connected to a Southeast Asian fraud scheme.
But the question here is whether that administrative control over an asset is functionally the same as possession. If a court says yes, Tether could be on the hook to judgment creditors just like any bank holding a frozen account.
What the case could test
The case could clarify crypto firms' sanctions obligations. Specifically, whether freezing a token means an issuer has taken custody of it—and therefore owes a duty to turn it over to a court-appointed receiver or judgment creditor. Tether has argued in other contexts that freezing is a compliance action, not an assumption of ownership.
The timing isn't great for Tether. The company is already under scrutiny from regulators and lawmakers over its reserves and transparency. A ruling that reclassifies its freeze mechanism as possession could open the door to more lawsuits from creditors holding sanctions-related judgments.
The case now awaits Tether's response or a ruling from the Southern District of New York. No hearing has been scheduled yet.
