Lummis Cites Tether Lawsuit as Example of Stablecoin Freeze Regulation Gap

U.S. Senator Cynthia Lummis has shed light on a gap in the rules governing stablecoin freezes, citing a lawsuit against Tether as an example. According to her, current regulations leave exchanges and issuers vulnerable to lawsuits when they restrict assets suspected of being linked to illicit activity.

Lummis pointed out that Section 305 of the CLARITY Act would provide a framework allowing covered entities to place temporary holds without civil liability. This provision defines a covered person as a permitted payment stablecoin issuer or a digital asset service provider, and allows for a qualified written request from a state or federal law enforcement agency.

The lawsuit against Tether was filed by two Thai nationals in the U.S. District Court for the Southern District of New York, alleging that the company used its smart-contract blacklist function to freeze their funds without prior notice. The plaintiffs argued that Tether has no custodial relationship with holders who acquire USDT on the secondary market.