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Conduit filed a lawsuit in a New York federal court on Tuesday, accusing Tether Ltd., the issuer of the USDT stablecoin, of freezing $2.76 million of its client’s funds for more than a year without any explanation. The complaint says the money was locked in a Tether‑controlled wallet on March 15 2022 and remains inaccessible despite repeated requests for release.

The dispute matters because Tether underpins a large share of daily crypto trading and payments. Its stablecoin is used to move value quickly across exchanges, DeFi platforms and traditional finance gateways. Any unexplained restriction of access raises questions about the firm’s governance, compliance procedures and the legal rights of users. The case comes as regulators in the United States and abroad intensify scrutiny of stablecoins, demanding greater transparency about reserves and operational controls. Critics have long warned that Tether’s opaque structure could expose users to unexpected losses.

Conduit’s filing alleges that Tether’s actions violated the terms of a service agreement that promised “unrestricted access” to deposited funds. The plaintiff points to internal emails showing that Tether’s compliance team flagged the account for a “potential AML concern” but never provided evidence of wrongdoing. Tether’s legal team, in a brief filed last week, said the freeze was a precautionary measure taken under its anti‑money‑laundering policy and that Conduit had not supplied sufficient documentation to clear the alert. The $2.76 million figure is modest compared with Tether’s reported $100 billion in reserves, but the amount represents a significant portion of Conduit’s operational cash flow.

The court will now schedule a preliminary hearing, and both sides are expected to exchange evidence in the coming weeks. If the judge rules that Tether had no legal right to hold the funds, the decision could set a precedent for how stablecoin issuers handle disputed accounts. A settlement is possible, but a ruling against Tether could pressure the company to tighten its compliance processes and improve transparency. The outcome will be watched closely by crypto firms and regulators alike, as it may shape the future relationship between stablecoin providers and their users.