Victims seek court order for $344M in frozen Tether USDT

A group of terror attack victims holding U.S. court judgments against Iran has asked a Manhattan federal judge to order Tether to turn over more than $344 million in USDT frozen after being linked to Iran’s Islamic Revolutionary Guard Corps.

"Tether has the technical ability to burn and reissue the blocked tokens," attorney Charles Gerstein argued in the May 15 filing in the Southern District of New York, asserting that a court can order the company to redirect the value to satisfy the judgments.

The 344,149,759 USDT in question were immobilized by Tether after the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned two Tron wallet addresses as property of the IRGC. The plaintiffs, including survivors of a 1997 Hamas bombing, hold billions in outstanding legal awards against Iran.

The case could set a major precedent for the $160 billion stablecoin market, testing whether the centralized control that allows issuers like Tether to freeze assets can also be used by courts to enforce judgments and reallocate funds, a stark contrast to the censorship-resistant nature of decentralized cryptocurrencies like Bitcoin.

A Test of Centralization

The legal motion hinges on the centralized nature of Tether's USDT. Unlike decentralized assets such as Bitcoin, Tether, the issuer, retains the power to freeze addresses and, as the plaintiffs argue, reissue tokens. The filing contends that this capability creates a legal obligation for the company to act when presented with a valid court order to satisfy judgments.

To bolster this claim, the plaintiffs point to past instances where Tether has allegedly exercised this power for law enforcement. The motion references a case where Tether reportedly transferred seized USDT to the U.S. government and another where it burned and reissued tokens to a law enforcement-controlled wallet, suggesting a precedent for such actions.

Broader Legal Campaign

The filing is part of a broader strategy by attorney Charles Gerstein to use crypto infrastructure to enforce legal judgments. He is also involved in litigation concerning frozen assets on the Arbitrum network, allegedly linked to North Korea's Lazarus Group. However, the Tether case is presented as more straightforward, as OFAC has already officially designated the wallet addresses as belonging to a terrorist organization, removing ambiguity about ownership.

The motion also asserts that the New York court has jurisdiction over the foreign-incorporated Tether. It argues that because the company's reserves are managed in New York by financial services firm Cantor Fitzgerald, it falls under the court's purview for this type of action. The case will determine if this link is strong enough to compel a foreign entity to comply with a U.S. turnover order.

This article is for informational purposes only and does not constitute investment advice.