A US law firm that has spent the last two weeks trying to claim frozen ether on Arbitrum is now going after a much larger target: the $344 million in USDT that Tether locked on Tron in late April at the request of US sanctions authorities.
CoinDesk reported on May 15 that Gerstein Harrow LLP, the boutique litigation firm led by Charles Gerstein, has set its sights on the frozen Tether balance after the same approach against the Arbitrum DAO ran into resistance from delegates. The firm represents families holding unpaid US court judgments against state sponsors of terrorism, and its theory is straightforward: a frozen on-chain balance is property, and property can be attached to satisfy a judgment.
The Arbitrum precedent the firm is leaning on
The first version of this argument played out on Arbitrum. After an April 18 exploit of Kelp DAO's rsETH, attackers used unbacked tokens as collateral to drain roughly $230 million in ether from Aave. About 30,766 ETH, worth around $71 million at current prices, was traced into addresses on Arbitrum and frozen by the chain's Security Council. US investigators linked the exploit to Lazarus Group, the North Korean state hacking unit.
Gerstein Harrow then filed a restraining notice and three writs of execution in the Southern District of New York on behalf of clients holding three default judgments against North Korea from 2010, 2015 and 2016, totalling roughly $877 million in compensatory damages, punitive damages and accrued interest. The filing instructs the Arbitrum DAO not to release the frozen ether.
Arbitrum delegates have pushed back. A nonbinding Snapshot proposal to return the frozen ether to Aave passed earlier this month, and ZachXBT called the firm's claim "pure evil" in a widely shared post. The DAO has not yet moved the funds, but the dispute has not been resolved in court either.
The Tether move is the same theory at a larger scale
The $344 million USDT seizure happened on April 23. Tether confirmed that it had blacklisted two Tron addresses at the request of US law enforcement, with the Treasury Department's Office of Foreign Assets Control linking the wallets to the Central Bank of Iran through a series of intermediary addresses. The action is part of Treasury Secretary Scott Bessent's "Economic Fury" campaign against Iranian financial networks.
For Gerstein Harrow, that frozen balance is a target rich enough to justify a second filing. Unpaid US judgments against Iran for state-sponsored terrorism run into the tens of billions of dollars across decades of litigation, and the firm has long argued that any Iranian assets identified inside US jurisdiction should be available to satisfy those judgments before being forfeited to the US government.
What the firm has not yet confirmed publicly is the exact instrument it has filed against Tether, whether a restraining notice, a writ of execution, or a turnover order. Tether has not said whether it will contest, and the company is registered in El Salvador with most operations in the British Virgin Islands, which complicates US service of process even when the underlying tokens sit on a public chain.
The stakes reach beyond the dollar amount
This is the first time a private US plaintiff has tried to claim frozen stablecoin balances that an issuer locked for a sanctions authority. The precedent has implications for every stablecoin user, not just those tied to sanctioned wallets.
If a court rules that a frozen USDT balance is property attachable by judgment creditors, two things follow. First, OFAC freezes become contestable assets rather than a path to clean US government forfeiture. Second, issuers like Tether and Circle become custodians for legal disputes they did not create, with potential exposure to competing claims from multiple plaintiffs over the same locked balance.
If the court rules the other way, the legal status of frozen on-chain balances becomes clearer for issuers but leaves terrorism-judgment families looking at another decade of unenforced rulings.
The broader market signal is also worth noting. Bitcoin trades at $80,769 as of May 15, up 1.7% on the day, with Ethereum at $2,264 and the stablecoin market continuing to expand. None of that moves in response to a single lawsuit, but the framework for who controls a frozen on-chain balance is exactly the kind of question regulators and courts will be forced to answer as tokenized assets grow.
Implications for issuer freeze policy
Tether already operates the most active stablecoin freeze function in the industry, with more than $2 billion frozen across various wallets over the company's history. Most of those freezes have gone uncontested. A successful claim by Gerstein Harrow on the Iran-linked balance would invite copycat filings against every other frozen pool: drug trafficking proceeds, sanctioned individuals, ransomware payments.
Tether's response so far has been to cooperate fully with US law enforcement, framing freezes as a feature rather than a liability. If frozen balances become litigation targets, that posture may need to change, with longer pre-freeze legal review and potentially less aggressive cooperation with non-US authorities.
For Circle's USDC and PayPal's PYUSD, the case is also worth watching. Both have similar freeze capabilities and both have used them under US legal process. The question of who has the better claim to a frozen balance, the issuer, the government, or a private judgment creditor, has not been litigated to a final ruling in any US court.
Overview
Gerstein Harrow LLP, the law firm currently fighting Arbitrum DAO to keep $71 million in frozen ether from being returned to Aave, has filed against the $344 million in USDT that Tether locked on Tron last month at OFAC's request. The firm's theory, that frozen on-chain balances can be attached by holders of unpaid terrorism judgments, would reshape how issuer freezes interact with private litigation if it succeeds. Tether has not said whether it will contest. The Arbitrum dispute has not yet produced a final ruling, and the Tether case is at an even earlier stage.
