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Circle has secured a court-backed arbitration win after records made public in a Boston federal court detailed why the stablecoin issuer suspended Heka Funds\u2019 USDC minting and redemption services over suspected market manipulation involving Tether.<\/p>\n
\n Summary<\/span>\n <\/p>\n <\/p>\n Court filings submitted by Circle<\/a> on Tuesday as part of its petition to confirm a February arbitration award said the company concluded the Malta-based arbitrage fund had failed to disclose Tether\u2019s role as its principal investor and reasonably suspected trading activity that could have manipulated the USDC market.<\/p>\n Retired judge Robert L. Dondero, who served as arbitrator, ruled in Circle\u2019s favor on the remaining contract claims, finding the company acted within the rights granted under its agreements with Heka.<\/p>\n At the center of the case was Heka Funds, managed by London-based Abraxas Capital Management, which opened a Circle account in January 2022 for its Elysium Global Arbitrage Fund.<\/p>\n According to the arbitration record, Heka disclosed only investor Simon Grima during onboarding, while Tether had become the fund\u2019s dominant capital provider. Testimony from Heka founder Fabio Frontini showed Tether\u2019s investment reached about $800 million by the time of arbitration, accounting for roughly 75% of Elysium\u2019s assets.<\/p>\n Dondero concluded the omission was intentional and wrote that the missing disclosure appeared designed to avoid revealing Tether\u2019s involvement in the fund. Circle Chief Business Officer Kash Razzaghi testified that the company would not have approved the account had it known of Tether\u2019s role when the relationship began.<\/p>\n The trading dispute emerged after Silicon Valley Bank\u2019s collapse in March 2023 temporarily pushed USDC below its dollar peg. According to the filings, Heka bought discounted USDC in secondary markets and redeemed the tokens with Circle at face value after many other arbitrage firms had stopped once the spread narrowed.<\/p>\n Internal Circle communications presented during arbitration showed executives disagreed over whether the trades represented legitimate arbitrage. Razzaghi described the activity as \u201ca manufactured arb not a market-driven one,\u201d attributing it to Tether waiving its normal fees, while Circle employee David Norton initially argued the trades appeared commercially rational.<\/p>\n <\/p>\n Circle allowed Heka to redeem more than $587 million in USDC over a two-week period while testing whether the trading opportunity depended on Heka\u2019s activity. Court records said Norton later changed his position after asking Heka to pause its trades and observing that the market spread tightened instead of widening. Coinbase also informed Circle it was uncomfortable working with Heka because of the fund\u2019s Tether relationship and fee structure, leading the exchange to place restrictions on the account, according to the filings.<\/p>\n Court documents showed Circle reduced Heka\u2019s minting and redemption limits to zero in November 2023 before suspending the account on Dec. 1 under Section 9(c) of the parties\u2019 master services agreement after Frontini threatened legal and regulatory action.<\/p>\n Heka\u2019s request to redeem $100 million in February 2024 was rejected, and the master services agreement expired the following month. Testimony presented during arbitration said Tether invested another $500 million in Elysium during the same month before Heka filed its arbitration claim.<\/p>\n Another issue raised during the proceedings involved Frontini\u2019s application for an account with Circle France shortly before the hearing. According to the arbitration award, he did not disclose the ongoing dispute and submitted a board resolution stating Heka maintained an active Circle relationship, later testifying he expected his U.S. application to fail.<\/p>\n Applying Delaware law, Dondero found Circle did not breach either agreement because the user terms allowed the company to adjust transaction limits and suspend services at its discretion. The arbitrator also ruled Circle was not required to prove market manipulation had occurred, only that it had reached a reasonable conclusion that such activity might be taking place.<\/p>\n Although Circle requested about $5.15 million in legal fees and costs, Dondero awarded only $166,643.25 related to expert work after finding Heka continued pursuing a $49 million lost-profits claim that had already been excluded from the case.<\/p>\n A Heka spokesperson told the Financial Times<\/em><\/a> the fund had never engaged in market manipulation and had never been the subject of a regulatory investigation involving such conduct. The spokesperson also said Circle sought to make the arbitration record public to divert attention from its refusal to process USDC redemptions.<\/p>\n The disclosure comes as Circle continues expanding its institutional business globally. The company recently received final approval<\/a> from the U.S. Office of the Comptroller of the Currency to establish Circle National Trust and is preparing to host its invitation-only Current Seoul event on July 23, where executives from banks, crypto exchanges, and payments companies are expected to discuss future partnerships as Circle pursues wider USDC adoption in South Korea.<\/p>\n <\/p><\/div>\n\n\n
Hidden Tether ties became central to the dispute<\/h2>\n
Arbitrator upholds Circle\u2019s contractual rights<\/h2>\n