Court orders Circle to freeze $12.6M in Zama cUSDC

A federal judge directed Circle to block the Ethereum contract behind Zama’s confidential USDC token and freeze 12,606,386 USDC held in that contract. Circle blacklisted the cUSDC contract at 1:08 a.m. UTC after the court issued a text-only order on May 29 in the U.S. District Court for the Northern District of California. The court set a hearing on the temporary restraining order for June 1.

The plaintiffs filed a class-action complaint on May 28, alleging Overnight Finance founder Maxim Ermilov moved about $15.77 million out of shared treasury wallets in May, just before a vote to liquidate the treasury. The filing says roughly $12.5 million of that amount was USDC and that about $14 million in total was bridged to Ethereum. The complaint says most of those funds were deposited into Zama’s confidential contract. Plaintiffs asked the court to freeze the assets, order Circle to blacklist the USDC, and permit service on Ermilov by email and Discord.

Because cUSDC is a wrapper that holds the pooled USDC backing confidential token holders, blocking the contract locked the entire pool rather than a single wallet. The frozen balance is slightly larger than the disputed deposit, which indicates other users’ funds were swept in. Zama paused its cUSDC, cUSDT and cWETH contracts while it investigates and identifies addresses tied to the matter.

Rand Hindi, Zama’s CEO, wrote on X that the company received no warning from Circle and that the contract appeared to have been “caught in a crossfire of another case.” Hindi added that the cUSDC wrapper had seen little usage and that more than 99% of funds in the contract came from a single deposit.

An on-chain investigator, using the handle ZachXBT, flagged the freeze and described the action as “precedent setting” for blacklisting a protocol contract where funds from multiple users are commingled. The investigator also expressed sympathy for Zama users who were indirectly affected.

The plaintiffs include institutional actors such as Patagon Management, led by Diogenes Casares, which has pursued legal actions aimed at recovering or reallocating protocol treasuries in other cases. The filing cites past instances in which courts issued orders to restrain access to crypto assets, including a prior case that restrained a founder from moving $35 million in crypto.

The legal filing frames transfers into Zama’s contract as an effort to hide the money, saying the confidential transfers can mask amounts after the initial deposit. Analysts traced the initial USDC deposit on the public blockchain to the cUSDC contract within hours, according to court filings and on-chain data referenced in the complaint.

Circle, plaintiffs’ counsel and Casares did not immediately respond to requests for comment. The court will hear arguments on the emergency order on June 1.