Examples of Extreme Government Overreach in Cryptocurrency Asset Forfeiture

To understand this problem with government overreach when seizing cryptocurrency, let’s look at a recent case decided on March 3, 2026, in the United States District Court for the Northern District of New York. Studying a specific case is often the best way to learn more about civil asset forfeiture cases involving cryptocurrency.

In United States v. 674,739.480211 USDT of Tether Cryptocurrency, No. 5:25-cv-01040 (BKS/PJE) 2026 U.S. Dist. LEXIS 42940 (N.D.N.Y. Mar. 3, 2026), the trial court issued an order that denied default judgment based on critical deficiencies in the government’s attempt to forfeiture nearly $675,000 in Tether (USDT) it seized. While denying the government’s motion for default judgment, the order identifies big problems that many judges overlook.

In this case, the trial court found the government lacked both an adequate tracing basis and failed to provide constitutionally sufficient notice. That is a dangerous combination because an innocent owner can’t raise these issues if they don’t know the government is attempting to obtain a default judgment. Alternatively, the victim of this underlying crime is also entitled to file a verified claim – but the government typically encourages them to only file a petition – which often puts the victim in a far worse position. The victim might never gets notice of the civil asset forfeiture case or their right to file a claim for court action.

The government’s case here began with a classic “pig butchering” scheme where a victim lost approximately 4.13 Bitcoin (BTC). The government attempted to trace these funds as they were converted from BTC to USDT across multiple blockchains (Bitcoin to Thorchain to Tron). On January 27, 2026, a Special Agent with the FBI Albany Division wrote a request to the court that provided:

“If feasible, my office requests expedited review….”

That review was slowed down since the notice and complaint had so many problems. The trial court identified several failures in the government’s tracing methodology and held the government to the “substantial connection” requirement found in 18 U.S.C. § 983(c)(3).

First, the government alleged that funds moved from a specific Bitcoin wallet to Thorchain, and then “additional tracing” identified transactions to a specific USDT wallet. The trial court noted that the government failed to identify the actual origin of those USDT transactions or explain how the “additional tracing” connected the two wallets. The court noted the government “does not identify the origin” of the USDT transactions and does not explain what “additional tracing” means. Id. at *19. As this case shows, courts should not accept words like “additional tracing” as a substitute for admissible, step-by-step attribution which should be carefully articulated in the complaint and supporting affidavit..

Second, the trial court notes a glaring oversight. The government alleged that the victim lost 4.13 BTC, yet only 2.74 BTC was traced to the exchange. In other words, the government failed to account for the full 4.13 BTC and did not explain how only a subset of those funds ultimately generated the traced USDT.

Third, the government claimed 443,953 USDT was traced to the “Target Wallet,” but even using a high-end benchmark cited by the court (~$124,000/BTC), the original 2.74 BTC was only worth approximately $340,543. The government failed to explain where the extra $100,000 came from.

Fourth, the government attempted to seize the entire balance of the Target Wallet—674,739 USDT—despite only alleging that 443,953 USDT was linked to the victim. The trial court refused to allow the forfeiture of the remaining $230,000 simply because it was commingled, stating the government had not shown a “substantial connection” between the entire amount and the crime.

Fifth, beyond the technical tracing errors, the government failed its basic due process obligations. In civil forfeiture, the government must provide notice that is “reasonably calculated” to reach potential claimants. In this case, the public notice published by the government provided:

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF NEW YORK COURT CASE NUMBER: 5:25-CV-01040; NOTICE OF FORFEITURE ACTION

Pursuant to 18 U.S.C. § 981, the United States filed a verified Complaint for Forfeiture against the following property: 674,739.480211 USDT from Tether account number #XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX5usu, held in the name of Best Acct# XXXXXXXXXXXXXXXXXXXXXXXXX (25-FBI-003794) seized from Tether on May 22, 2025 in Albany, NY.

The notice described the property as being held in a Tether account ending in “#…5usu”. However, the verified complaint identified the seized funds as being in “Wallet TNj4y6nnTX”. The Court pointed out that there was no explanation of how these two identifiers were connected, meaning a potential claimant looking for their wallet address would never have found the notice. Strangely, “5usu” is not listed in the government’s complaint at all.

The public notice further complicates the identification by referencing a Tether account number ending in #…5usu, rather than providing the full alphanumeric blockchain address. The complaint alleges:

18. Additional tracing identified seven transactions totaling 286542.299 USDT to wallet 0xFf4bBDc981EbE275630704E680C2086498576909 (“Wallet 0xFf4bBD”). Wallet 0xFf4bBD then exchanged the Tether onto the Tron blockchain (simply a different network, but it retains the same value per USDT token) on December 15, 2024, for 118743.317351 USDT TRON, and on December 17, 2024, for 167225.897073 USDT TRON to wallet TDoj7UUpKZieJFK5CHfZcuDpJkWw55Dg3J (“Wallet TDoj7UUp”).

19. Wallet TDoj7UUp made two transfers to the Target Wallet TNj4y6nnTX on December 15, 2024 of 194479.719531 USDT TRON and December 17, 2024, of 249473.322623 USDT TRON. A total of 443,953 USDT TRON was traced from the Victim’s accounts to the Target Wallet.

Sixth, the government claimed there were “no known potential claimants,” yet they made zero effort to contact the email or mailing addresses associated with the “Know Your Customer” (KYC) data typically held by exchanges. The reason any potential claimants could not be identified was not explained in the complaint.

I would add that the court missed the biggest problem – what about the victim who lost the lost 4.13 BTC, why were they not identified as a potential claimant and given notice that the complaint was filed? Why does the government get to decide who is an owner-victim vs. a non-owner-victim?

Seventh, the trial court questions whether the government’s theory even fits within the statutory framework of the federal money laundering laws. In this case, the trial court flagged a critical problem that appears in many prosecutions but is rarely addressed: whether the alleged cryptocurrency transfers qualify as “monetary transactions” under 18 U.S.C. § 1957.

That statute requires a transaction involving “funds” or a “monetary instrument,” typically conducted through a “financial institution.” The government, however, made no effort to even allege that the cryptocurrency constitutes “funds” within the meaning of the statute, whether the platforms involved qualify as financial institutions, or whether decentralized blockchain transfers satisfy the statutory definition at all.

The AUSA might fix these problems because the trial court gave the government an opportunity to “renew their motion for default judgment by filing, within thirty days of the date of this Order, a renewed motion for default judgment with affidavits or evidence and a memorandum of law addressing the issues raised in this decision.”

But this order shows what all judges should look for when reviewing the initial complaint or a motion for default judgment.

Attorney Leslie Sammis represents innocent owners after their cryptocurrency is frozen or seized for civil asset forfeiture. Read more about problems with cryptocurrency tracing and blockchain analysis.