Circle Banned a Tether-Backed Fund Over Manipulation Fears, and an Arbitrator Agreed

Circle suspended a Tether-backed fund in 2023

Circle, the issuer of the USD Coin (USDC) stablecoin, suspended trading for Heka Funds on 1 December 2023. It had already cut the fund's limits to zero in November 2023. Newly public arbitration filings show Circle acted over concerns that Heka was manipulating the USDC market to benefit Tether, its main rival. Heka is a Malta-based arbitrage fund managed by London's Abraxas Capital Management.

Tether backed most of the fund's assets

Circle did not initially know that Tether had become Heka's dominant backer. Tether's stake reached about $800 million, roughly 75% of the fund's total assets, channelled through a linked vehicle called Elysium. When Heka opened its Circle account in January 2022, founder Fabio Frontini disclosed only one investor. The relationship soured once Circle learned of Tether's role in the fund.

"To this Arbitrator, this omission was intended to avoid the disclosure of Tether's role in Elysium", February 2026. — Robert L. Dondero, Arbitrator

The arbitrage trades drew Circle's scrutiny

The concerns centred on how Heka traded USDC after SVB's collapse in March 2023. The depeg let arbitrageurs buy discounted USDC and redeem it with Circle at face value. Heka kept running these trades after most other traders stopped. Circle later tested the pattern and let Heka redeem $587 million in USDC over two weeks. The spread tightened rather than widened, and it narrowed further once Heka paused trading. Circle read this as a sign that dollars were moving to Tether rather than following the market.

An arbitrator sided with Circle

Heka took Circle to arbitration in 2024. It claimed the ban cost it $49 million in lost profit. The arbitrator, retired judge Robert Dondero, dismissed the claim and ruled in Circle's favour. He found that Heka acted in bad faith by concealing Tether's stake, though he stopped short of a formal market-manipulation finding. Circle had sought $5.15 million in fees and costs. Dondero awarded about $166,000, covering expert work only.

The dispute widened during 2024. Circle denied a $100 million redemption request from Heka in February 2024. In the same month, Tether invested a further $500 million in Elysium. Coinbase also placed restrictions on the fund around this period.

Heka denies manipulating the market

Heka rejects the manipulation claim. A fund spokesperson set out its position to the Financial Times after the ruling became public.

"The fund never engaged in market manipulation and has never been the subject of any regulatory investigation", July 2026. — Heka Funds spokesperson

USDC market cap stood near $73 billion

USDC remains among the largest stablecoins. It traded at about $1.00 with a market capitalisation near $73 billion at the time of publication (CoinPaprika, 15 July 2026). The dispute traces back to the March 2023 collapse of Silicon Valley Bank (SVB). That failure briefly pushed USDC below its dollar peg and set off the arbitrage trades at the centre of the case.