A federal court in New York has frozen over $57 million in USDC linked to a controversial memecoin that collapsed earlier this year. The temporary freeze is part of a wider legal battle stemming from the Libra coin’s sharp rise and even steeper fall, which affected thousands of small investors and dragged high-profile names into controversy.
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Court Blocks USDC Linked to Alleged Fraud Scheme
On May 28, the Southern District Court of New York ordered a freeze on $57.65 million in USDC, a dollar-backed stablecoin managed by Circle. The funds were seized as part of a class-action lawsuit against the creators and promoters of the Libra meme coin. The plaintiffs allege they were misled and defrauded through price manipulation, misleading claims, and insider withdrawals.
The lawsuit, filed on March 17, names Kelsier Ventures and its founders Gideon, Thomas, and Hayden Davis. It claims these individuals created the Libra coin and manipulated liquidity on the Solana blockchain to drain over $100 million from investors.
The complaint also lists other firms and individuals – such as KIP Protocol CEO Julian Peh and Meteora co-founder Benjamin Chow – as contributing to or enabling the alleged scheme through negligence or direct participation.
According to attorney Max Burwick, who represents the plaintiffs, the funds in question are connected to wallets that were involved in the suspected fraud. Blockchain data backs up the freeze. Solana’s explorer, Solscan, shows two wallets – one with $44.59 million and another with $13 million – were frozen within minutes on May 28.
Context: Libra’s 94% Collapse
Libra made headlines on February 14 when Argentine President Javier Milei posted about the token on X (formerly Twitter). The message, now deleted, was interpreted by many as an endorsement. The effect was immediate. Within hours, Libra’s market cap soared to $4 billion, drawing attention from both local and global crypto investors.
The climb, however, did not last. The token lost 94% of its value on the same day. It turned out that large holders and insiders began pulling out money just as retail investors were buying in. Blockchain analysis later showed around $107 million was pulled from liquidity pools by addresses linked to the development team. Over $57 million was cashed out in USDC, and nearly $50 million in SOL was also withdrawn.
The wallet that deployed the Libra token contract had received funds from an exchange without identity checks. That detail sparked suspicions about the origin and legitimacy of the project. Analysts and victims started raising questions about how such a setup went unnoticed until after the damage was done.
Read also: LIBRA Fallout: Billions Lost, Political Chaos, Insider Deals
Critics Slam Milei’s Alleged Cover-Up
In Argentina, the fallout reached the national stage. The opposition accused President Milei of backing a fraudulent scheme and demanded his impeachment. The situation sparked outrage, particularly because the coin was initially advertised as a way to boost Argentina’s economy and support small businesses. However, the proposal was never backed by any official plan or structure.
Milei quickly distanced himself from the coin, removed his social media post, and issued a defensive statement. He wrote,
“To the filthy rats of the political caste who want to take advantage of this situation to do harm, I want to say that every day they confirm how vile politicians are, and they increase our conviction to kick them in the ass.”
Despite political backlash, the calls for impeachment eventually lost steam. Yet the damage was already done. A poll conducted in March by Zuban Córdoba showed a drop in Milei’s approval ratings. Many citizens saw the coin’s collapse as a sign of weak financial oversight and questioned whether public officials had any involvement.
On May 19, President Milei signed a decree that abruptly ended the investigation into the Libra incident. The task force set up to examine the matter was shut down just over three months after it was created. Critics argued the closure showed a lack of will to uncover the truth. Economist and legislator Itai Hagman criticized the move harshly:
“It was always a fake, they never dared to investigate anything at all.”
Final Words
The temporary freeze of $57.65 million in USDC is now at the center of the legal battle in New York. The court action was taken to prevent the accused from moving or hiding assets while the case proceeds. Plaintiffs claim the funds represent proceeds from a liquidity trap used to defraud investors.
A hearing scheduled for June 9 will determine whether the assets remain frozen as the case unfolds. The defense is expected to argue that the freeze is unjustified and challenge the basis of the fraud allegations. Meanwhile, Circle, the issuer of USDC, has not been accused of any wrongdoing but is caught in the process as its token is at the heart of the dispute.
Read also: Ripple and Coinbase Interested in Circle as IPO Plans Continue
