Tether Targeted for $344 Million in Frozen USDT Linked to Iran’s Revolutionary Guard

TLDR

• Terrorism victims are asking a Manhattan federal judge to order Tether to hand over $344 million in frozen USDT
• The funds are linked to Iran’s Islamic Revolutionary Guard Corps (IRGC), which is sanctioned by the U.S. Treasury
• Attorney Charles Gerstein is using crypto platforms’ ability to freeze and redirect funds to satisfy old terrorism judgments
• Unlike Bitcoin or Ether, USDT can be frozen, blacklisted, and reissued by Tether — making this case legally simpler
• Gerstein has used the same strategy in separate cases involving Arbitrum, a KelpDAO hack, and privacy protocol Railgun DAO

Victims holding long-unpaid U.S. court judgments tied to Iranian-backed terrorism have filed a legal motion asking a federal judge in Manhattan to force Tether to hand over more than $344 million in frozen USDT.

The filing was submitted Thursday in the Southern District of New York. It targets stablecoins that Tether froze after the U.S. Treasury’s Office of Foreign Assets Control (OFAC) designated two Tron wallet addresses as belonging to Iran’s Islamic Revolutionary Guard Corps.

The plaintiffs include survivors and families of victims from attacks linked to Iranian-backed groups. Among them are survivors of the 1997 Hamas suicide bombing in Jerusalem. They hold billions of dollars in unpaid court judgments against Iran.

The group is asking the court to order Tether to freeze the tokens and reissue an equivalent amount — 344,149,759 USDT — to a wallet controlled by their legal counsel.

Attorney Charles Gerstein is leading the case. He has been building a legal strategy around using crypto platforms’ built-in controls to recover money for terrorism victims.

How Tether’s Controls Make This Case Different

Unlike Bitcoin or Ether, USDT is issued by a central company. Tether has the technical ability to freeze wallet addresses, blacklist accounts, and in some cases, zero out balances and reissue tokens to a different address.

Gerstein’s argument is straightforward: Tether already froze the funds in response to OFAC sanctions. That means Tether has the ability — and, the plaintiffs argue, the legal obligation — to move those funds to the judgment creditors.

This is different from cases involving hacked funds, where questions of legal ownership can be disputed. Here, OFAC has already formally designated the wallets as belonging to the IRGC, which the U.S. government classifies as a state sponsor of terrorism.

The plaintiffs say that designation makes the frozen USDT “blocked property” of a terrorist organization, and therefore subject to seizure under federal law.

A Wider Legal Strategy Targeting Crypto Platforms

This is not Gerstein’s first attempt to recover terrorism judgments through crypto. He is also behind litigation involving frozen funds on Arbitrum tied to the KelpDAO hack, which has links to North Korea’s Lazarus Group.

In that case, Gerstein argued that Ether frozen after the hack constituted North Korean property. That argument is legally messier, because the platform Aave challenged whether stolen funds ever legally became the hackers’ property.

The Tether case, Gerstein argues, is cleaner. The ownership question has effectively been settled by OFAC’s own designation.

He is also pursuing a separate case against privacy protocol Railgun DAO using a similar approach.

The broader legal theory at play is that if crypto infrastructure can freeze sanctioned assets, courts may also be able to direct those same systems to transfer the assets to victims with enforceable judgments.

As of the filing date, no ruling has been issued. The case is pending in the Southern District of New York.

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