Law firm Gerstein Harrow LLP filed a motion Thursday asking a court to compel Tether to hand over more than $344 million in frozen USDt linked to Iranian entities, claiming the funds should be redistributed to its clients as compensation for acts of terrorism sponsored by Iran stretching back more than 25 years. The motion seeks more than $532 million in compensatory damages and more than $1.8 billion in punitive damages on behalf of plaintiffs who hold existing judgments against Iran for state-sponsored violence — claims that are entirely unrelated to cryptocurrency, blockchain activity, or the specific transactions that resulted in the funds being frozen. The $344 million was frozen by OFAC in April as part of a sanctions enforcement action targeting Iranian entities, with Tether freezing the stablecoins at US authorities' request citing activity tied to unlawful conduct. Gerstein Harrow is now attempting to redirect those frozen assets toward satisfying its clients' existing judgments rather than allowing them to remain under government control or be returned through sanctions proceedings.The crypto community's reaction has been pointed.

The law firm has applied the same strategy to other frozen crypto asset pools, including filing a restraining notice against Kelp DAO in May attempting to block the transfer of frozen ETH tied to the $293 million Kelp exploit — funds that hack victims, DeFi United recovery coalition members, and a federal court had all agreed should be used for ecosystem recovery. Critics argue that using court mechanisms to redirect funds owed to hack victims toward satisfying unrelated decades-old judgments delays repayment for people who have a more direct and immediate claim to the assets. The legal theory that frozen crypto linked to sanctioned state actors should be treated as available collateral for any holder of a judgment against that state actor has significant practical implications for how DeFi recovery efforts can function when hacks are attributed to North Korean or Iranian actors.