US prosecutors have detailed how a fraud ring moved $36.9 million stolen from 174 identified American victims into Tether's USDT, according to court filings reported by CryptoSlate on October 25, 2026. The funds passed through US shell companies and Deltec Bank in the Bahamas, where prosecutors allege they were converted into the stablecoin before the crypto was routed to wallets controlled from Cambodia.
The defendant at the center of the case
Zheng Zhao, a 44-year-old Chinese national, was extradited to the United States and charged with conspiracy to commit money laundering and conspiracy to operate an unlicensed money-transmitting business. Prosecutors say he helped a criminal network move millions of dollars stolen from the 174 victims through US shell companies, international bank accounts, and cryptocurrency wallets. He was charged in August 2025, appeared in court on October 23, 2026, and is scheduled for arraignment on November 30.
Zhao is not alone in the case. Eight people have entered guilty pleas tied to the scheme, among them Jose Somarriba, ShengSheng He, Jingliang Su, Joseph Wong, and Yicheng Zhang. One defendant faces roughly $26.9 million in restitution.
The money's path into USDT
The laundering ran in stages. Stolen dollars first landed in accounts held by US shell companies. From there, prosecutors allege, the money reached Deltec Bank in the Bahamas, which converted it into Tether's USDT. The stablecoin balances were then transferred to wallets controlled out of Cambodia, pushing the proceeds offshore and onto a blockchain in a form that is quick to send across borders.
That sequence is the part worth sitting with. The conversion into a dollar-pegged token happened at a bank, after the cash had already been separated from its victims through conventional accounts. The crypto leg came last, not first. By the time value touched a blockchain, the hardest part of the fraud, taking money from real people, was already done.
Tether and the bank are not accused of wrongdoing
Prosecutors have not accused Tether or Deltec Bank of knowingly participating in the fraud. The USDT was the instrument used to move value, not an alleged co-conspirator. That line matters for how cases like this get read. A stablecoin issuer can see its token used downstream in a laundering chain without any finding that the issuer took part, in the same way a bank can process a wire for a customer who turns out to be a criminal.
It also points to where the compliance pressure actually sits. The weak joints in this chain were the shell-company accounts and the bank that turned fiat into crypto, which is the same on-ramp and off-ramp layer that anti-money-laundering rules target hardest. Enforcement tends to land there because that is where names, accounts, and identities are supposed to be checked.
The takeaway for people who hold stablecoins
For anyone who holds or spends stablecoins, the case reads less as a warning about USDT specifically and more as a reminder of how centrally issued tokens work. A fiat-backed stablecoin has an issuer, and that issuer sits at a chokepoint. It can freeze balances flagged by law enforcement, and it can be compelled to assist investigations. For victims trying to trace stolen funds, that control can help recovery. For users who value permissionless money, it is a reminder that these tokens are not neutral bearer assets you fully control once they land in your wallet.
The episode also underlines why the banking intermediary matters as much as the chain itself. American victims lost money through ordinary accounts long before any token was minted or moved. The blockchain recorded the final hops with a public, traceable trail, but the fraud that fed it was conventional.
People who want to limit third-party exposure in everyday spending sometimes lean toward spending from a wallet they control rather than parking balances with a custodian. That choice cuts both ways. Self-custody removes one counterparty, but it shifts the full weight of key management and recovery onto the holder, with no issuer or bank to call when something goes wrong.
Overview
A US money-laundering prosecution alleges that $36.9 million stolen from 174 American victims was funneled through shell companies and Deltec Bank in the Bahamas, converted into Tether's USDT, and sent to wallets controlled from Cambodia. Zheng Zhao faces money-laundering and unlicensed money-transmission charges, eight people have pleaded guilty, and one defendant owes about $26.9 million in restitution. Prosecutors have not accused Tether or Deltec of knowing involvement. The case places the conversion from fiat to stablecoin at the center of anti-money-laundering scrutiny, and it is a reminder that centrally issued tokens come with an issuer that can freeze balances and cooperate with investigators.
