Circle wins arbitration after banning Tether-backed Heka Funds over market manipulation concerns

Circle secured a court-backed arbitration victory after filings in Boston federal court detailed why it suspended Heka Funds’ USDC minting and redemption access. Retired judge Robert L. Dondero found Circle acted within its contractual rights after concluding Heka had intentionally failed to disclose Tether’s role as the principal investor in its Elysium Global Arbitrage Fund and after Circle reasonably suspected trading activity that might manipulate the USDC market. The dispute centered on Heka’s trading after Silicon Valley Bank’s collapse in March 2023, when USDC briefly lost its dollar peg. Heka bought discounted USDC in secondary markets and redeemed it with Circle at face value, ultimately redeeming more than $587 million over two weeks. Internal Circle communications showed disagreement over whether the strategy was legitimate arbitrage, but the arbitrator ruled Circle did not need to prove manipulation occurred, only that it had reasonably concluded it might be taking place. Testimony showed Tether’s investment in Elysium had reached about $800 million by the time of arbitration, representing roughly 75% of the fund’s assets, and Circle said it would not have approved the account had it known that at onboarding. Circle cut Heka’s transaction limits to zero in November 2023, suspended the account on Dec. 1, and later rejected a $100 million redemption request in February 2024. Dondero also awarded Circle $166,643.25 in expert-related costs after rejecting broader fee claims. Heka has denied engaging in market manipulation. The ruling comes as Circle expands its institutional business, including final approval from the U.S. Office of the Comptroller of the Currency for Circle National Trust and an upcoming Seoul event focused on partnerships and USDC adoption.