TL;DR:
Court documents were submitted to a Boston federal court revealing that Circle suspended the minting and redemption services of an arbitrage fund in December 2023 over suspicions of market manipulation. The issuing firm of the USDC stablecoin concluded that the operations of Heka Funds, a Malta-based fund, allegedly sought to benefit Tether, its main competitor in the digital asset sector.
According to the final arbitration award issued by retired judge Robert L. Dondero, Heka opened a free Circle account in January 2022 for its Elysium Global Arbitrage Fund. However, the subsequent investigation determined that Tether became the dominant financial backer of said fund.
Financial records show that, as of April 28, 2023, Tether’s position in Elysium stood at approximately $500.2 million. A month later, the amount rose to $504.6 million. According to testimony from Heka founder Fabio Frontini, Tether’s investment reached $800 million during the arbitration process, representing approximately 75% of Elysium’s total assets.
The judicial ruling details that Frontini failed to declare these capital providers when opening the account, naming only a single individual investor. According to the arbitrator’s resolution, this omission was a deliberate attempt to prevent Tether’s role in the fund from being discovered. Circle’s Chief Business Officer, Kash Razzaghi, testified that the company would not have approved the account opening had it known about this link from the beginning.
The operational dispute began in March 2023, coinciding with USDC’s temporary loss of its dollar peg following the collapse of Silicon Valley Bank. During this period of volatility, Heka acquired discounted USDC on secondary markets and redeemed them at face value directly with Circle. Although other funds halted this strategy when margins narrowed, Heka continued to operate continuously.
Internal disagreements within Circle regarding the nature of these transactions delayed drastic sanctions. While some executives believed it was an artificial arbitrage facilitated because Tether allegedly waived its usual fees, other internal analysts argued that the operations followed a regular financial logic. This discrepancy led to the denial of summary judgment motions in April 2025, postponing the final resolution.
Ultimately, Circle reduced Heka’s minting limits to zero in November 2023 and finalized the suspension on December 1, 2023. In February 2024, Circle rejected a request from Heka to redeem $100 million in USDC.
Arbitrator Dondero ruled that Circle did not commit a breach of contract, as the commercial agreements under Delaware law granted it the right to modify limits and suspend services without prior notice or legal liability. A Heka spokesperson told the Financial Times that the fund never participated in market manipulation nor has it been the subject of regulatory investigations for misconduct.
