Arbitrator Backs Circle in Dispute Over Frozen Heka Funds Account Tied to Tether

Newly disclosed court documents show that stablecoin issuer Circle froze the account of crypto fund Heka Funds at the end of 2023, citing suspicions of large-scale arbitrage and market manipulation that it believed ultimately benefited Tether's USDT business. According to the filings, the activity intensified during the 2023 Silicon Valley Bank (SVB) turmoil, when USDC briefly traded below its $1 peg. Circle alleged that Heka repeatedly bought USDC at a discount and redeemed it with Circle for U.S. dollars, with redemption volumes it viewed as far exceeding those of other market participants. Circle said it suspected the proceeds were routed to Tether and used to help expand USDT's market share. Arbitration materials also indicate that Tether invested roughly $800 million in Heka, representing about 75% of the fund's assets, and waived stablecoin minting fees. The arbitrator concluded that Heka failed to disclose its relationship with Tether and understood that revealing it would raise concerns at Circle. After the freeze, Heka initiated arbitration in 2024 seeking about $49 million in lost profits. In February this year, the arbitrator rejected all claims, found Heka acted in bad faith, and ordered it to pay Circle around $166,000 in legal and expert fees. Heka denies market manipulation and says it has never been subject to a regulatory investigation. Circle declined to comment, and Tether did not respond to media requests for comment. (Source: ChainCatcher)