Circle suspended the account of Malta-based Heka Funds in December 2023 after concluding the fund may have been engineering market manipulation to benefit its largest competitor, Tether, according to arbitration filings made public in Boston federal court. The documents reveal that Circle's stablecoin USDC was caught up in a large arbitrage trade driven by Tether's hidden $800 million investment, which Circle's chief business officer testified would have led the issuer to deny the account from the start.
Heka, managed by London's Abraxas Capital Management, opened a free Circle account in January 2022 for its Elysium Global Arbitrage Fund. Circle later determined that Tether was the fund's dominant backer — its stake had grown to approximately $800 million, or 75% of Elysium's total assets, by the time of the arbitration. Founder Fabio Frontini had initially disclosed only a single investor, Simon Grima, when opening the account — an omission the arbitrator, retired judge Robert L. Dondero, found was deliberate to hide Tether's role.
The core dispute traces to March 2023, when Silicon Valley Bank's collapse pulled USDC below its dollar peg. Heka bought discounted USDC on secondary markets and redeemed it with Circle at par, a trade others abandoned as spreads tightened. Circle came to suspect Tether was waiving its usual fees to sustain the arbitrage, leading to internal disagreements over whether to cut off the activity. Eventually, Circle slashed Heka's minting and redemption limits to zero in November 2023 and suspended the account on December 1. A subsequent request for a $100 million redemption was denied.
In the arbitration, Dondero found that Circle did not breach its contracts, ruling the user agreement gave it broad rights to change limits and suspend services without liability. He also noted Frontini testified the agreement remained in force after signing a master services agreement within two minutes of receiving it. While Circle sought $5.15 million in fees, the arbitrator awarded only $166,643.25 for expert costs, after Heka pursued a $49 million lost-profits claim it knew was dead. The ruling confirms Circle's actions as contractually permissible, while leaving the manipulation allegations unproven in court. Heka denies any misconduct and called the disclosure an attempt to distract from Circle's refusal to honor redemptions.
