Circle Bans Tether-Supported Heka Funds Account, Arbitration Rules in Favor of Circle

Circle banned the Tether-supported crypto fund Heka Funds at the end of 2023, suspecting it of manipulating the market through large-scale arbitrage operations to help Tether expand its market share. Court documents reveal that during the 2023 Silicon Valley Bank crisis, USDC briefly fell below its $1 peg, while Heka continued to buy discounted USDC in large quantities and redeemed it for cash from Circle. Circle believes that Heka's redemption scale far exceeded that of other market participants and suspects that the related funds ultimately flowed to Tether. Arbitration documents disclosed that Tether had invested approximately $800 million in Heka, accounting for about 75% of the fund's assets, and waived the stablecoin minting fees. The arbitrator found that Heka did not disclose its relationship with Tether truthfully and was aware that the related information would raise concerns for Circle. In 2024, Heka initiated arbitration due to the account ban, claiming approximately $49 million in lost profits. In February of this year, the arbitrator dismissed all of Heka's claims, determining that it had acted maliciously and ordered it to pay Circle approximately $166,000 in legal and expert fees. Heka denies any market manipulation, Circle declined to comment, and Tether did not respond to media requests.