Newly public court documents, cited by the Financial Times, show that stablecoin issuer Circle froze the account of Heka Funds, a crypto fund backed by Tether, in late 2023. Circle suspected the fund of using large-scale arbitrage during the Silicon Valley Bank crisis to manipulate the market and help expand Tether’s share. According to the arbitration record, Heka bought discounted USDC when the token briefly fell below its $1 peg in 2023 and redeemed those tokens with Circle for U.S. dollars. Circle argued that Heka’s redemption activity far exceeded that of other market participants and suspected the proceeds ultimately flowed to Tether to support USDT growth. The filings also said Tether had invested about $800 million in Heka, representing roughly 75% of the fund’s assets, and had waived stablecoin minting fees. Heka later filed arbitration in 2024, seeking about $49 million in lost profits after the account freeze. In February this year, the arbitrator rejected all of Heka’s claims, found that it had acted in bad faith, and ordered it to pay Circle about $166,000 in legal and expert costs.
According to the Financial Times, newly public court documents show that stablecoin issuer Circle froze the account of Heka Funds, a crypto fund backed by Tether, in late 2023. Circle said it suspected Heka of using large-scale arbitrage to manipulate the market and help Tether expand its market share.
The filings say that during the 2023 Silicon Valley Bank, or SVB, crisis, USDC briefly fell below its $1 peg. Heka kept buying discounted USDC and redeeming it with Circle for U.S. dollars in cash. Circle argued that Heka’s redemption volume was far larger than that of other market participants, and said it suspected the funds ultimately flowed to Tether to help expand the market size of USDT.
The arbitration record also disclosed that Tether had invested about $800 million in Heka, accounting for roughly 75% of the fund’s assets, and had waived stablecoin minting fees. The arbitrator said Heka had not truthfully disclosed its backing relationship with Tether and knew that the information would raise concerns at Circle.
In 2024, Heka filed for arbitration over the account freeze and sought about $49 million in lost profits. In February this year, the arbitrator dismissed all of Heka’s claims, found that it had acted in bad faith, and ordered it to pay Circle about $166,000 in attorneys’ fees and expert costs.
Heka denied market manipulation and said it had never been the subject of a regulatory investigation over the matter. Circle declined to comment, while Tether did not respond to media requests for comment.
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