Circle froze Tether-backed crypto fund Heka in 2023; arbitrator later sides with Circle

ChainThink cited a July 15 Financial Times report saying newly released court filings show Circle froze accounts tied to Heka Funds, a cryptocurrency fund backed by Tether, in late 2023. Circle said it suspected Heka of using large-scale arbitrage to manipulate markets and of helping Tether grow its market share. The documents describe activity during the 2023 Silicon Valley Bank crisis, when USDC briefly traded below its $1 peg. Circle said Heka repeatedly bought USDC at a discount and redeemed it with Circle for U.S. dollar cash, with redemption volumes that Circle viewed as far larger than those of other market participants. Circle also said it suspected the proceeds ultimately flowed to Tether. Arbitration materials indicate Tether invested about $800 million in Heka, representing roughly 75% of the fund's assets, and waived stablecoin minting fees. The arbitrator found Heka did not disclose its backing relationship with Tether and knew that the link would raise concerns at Circle. After the freeze, Heka launched arbitration in 2024, seeking about $49 million in lost profits. In February this year, the arbitrator rejected all of Heka's claims, found it had acted in bad faith, and ordered it to pay Circle around $166,000 in legal and expert costs. Heka denies market manipulation and says it has never been investigated by regulators. Circle declined to comment. Tether did not respond to requests for comment.