Circle suspended Heka Funds' minting and redemption services in December 2023 after concluding the Malta-based arbitrage fund may have been manipulating the market to benefit Tether, according to arbitration documents made public in a Boston federal court on Tuesday. The suspension followed Circle's determination that Tether, its largest competitor in the stablecoin market, was the dominant backer of Heka's Elysium Global Arbitrage Fund. Retired judge Robert L. Dondero, serving as arbitrator, sided with Circle on the contract claims in a February arbitration award, which Circle petitioned to confirm through the court filings. The case centers on Circle's conclusion that the company behind USDT was engineering a customer's trading activity involving USDC, the $73 billion stablecoin Circle issues.
Heka Funds Omitted Tether as Dominant Investor in Account Disclosures
Heka, managed by London-based Abraxas Capital Management, opened a free Circle account in January 2022 for its Elysium Global Arbitrage Fund. Circle later determined that Tether was the fund's dominant backer. Tether's cumulative position in Elysium stood at roughly $500.2 million as of April 28, 2023, and about $504.6 million a month later. By the time of the arbitration, Tether's investment had grown to $800 million, representing approximately 75% of Elysium's total assets, according to testimony from Heka founder Fabio Frontini.
Frontini disclosed a single investor, Simon Grima, when the account was opened. Dondero concluded the omission of Elysium's actual capital providers was deliberate. "To this Arbitrator, this omission was intended to avoid the disclosure of Tether's role in Elysium," Dondero wrote in the final award. Circle Chief Business Officer Kash Razzaghi testified the company would not have opened the account at all had it known about the Tether link in January 2022.
Circle Tested Arbitrage Hypothesis Through $587 Million Redemption Period
The dispute traces to March 2023, when Silicon Valley Bank's collapse pulled USDC below its dollar peg. Heka bought discounted USDC on secondary markets and redeemed it with Circle at par, the same arbitrage other funds ran. Other traders stopped as the spread tightened. Heka did not, per the filings.
Circle's own staff were split on what they were watching. Kash Razzaghi told colleagues in May 2023 that the trade was "a manufactured arb not a market-driven one," attributing it to Tether waiving its usual fees. David Norton, who appeared to be a Circle employee, pushed back days later, writing that Frontini's trades made rational sense to him and that cutting Heka off would simply hand the arbitrage to someone else.
Circle allowed Heka to redeem more than $587 million in USDC across a two-week stretch while it tested Frontini's thesis that the spread would widen without him. In May 2023, Norton asked Heka to pause. The spread tightened instead. Norton called the outcome "a pretty material data point," and his view shifted. Coinbase told Circle that year it was uncomfortable dealing with Heka over the fund's Tether ties and unique fee structure, and placed its own restrictions on the account.
Circle Suspended Heka Account on December 1, 2023
Circle cut Heka's minting and redemption limits to zero in November 2023, court documents revealed. Frontini responded with a letter threatening legal action and a regulatory complaint, and Circle suspended the account on December 1, 2023, citing Section 9(c) of the parties' master services agreement.
Heka's February 2024 request to redeem $100 million was denied. The MSA lapsed the following month. Tether invested another $500 million in Elysium during that same February, per Frontini's testimony. Heka filed its arbitration demand roughly a month later.
Two months before the hearing, Frontini applied for an account with Circle France without disclosing the pending arbitration, and Heka misrepresented in a board resolution that it held a current Circle relationship. Frontini testified he went to the French subsidiary because he expected to fail in the U.S.
Arbitrator Ruled Circle's Contracts Permitted Suspension Without Breach
Dondero found no breach. Delaware law governed both contracts, and the user agreement gave Circle the right to change limits "as we deem necessary" and to suspend services "without notice and without liability."
Frontini conceded on the stand that the user agreement remained in full force after he signed the MSA, a document he acknowledged signing within two minutes of receiving it. Circle never had to prove manipulation, only to reach a reasonable conclusion that it might be occurring, Dondero ruled. That internal disagreement was enough to survive summary judgment. Dondero denied both sides' Rule 18 motions on the breach of contract claims in April 2025, ruling that the manipulation question could not be resolved on paper.
Circle Awarded $166,643.25 in Expert Fees
The arbitrator declined to award Circle the $5.15 million in fees and costs it sought. He carved out one exception: Heka kept pursuing $49 million in lost profits for a period the April 2025 ruling had already foreclosed, and did not tell its own damages expert the claim was dead until Circle's counsel raised it on cross-examination. Dondero awarded $166,643.25 for the expert work Circle had to do in response.
A Heka spokesperson told the Financial Times the fund never engaged in market manipulation and has never been the subject of any regulatory investigation or proceeding involving manipulation or similar misconduct. The spokesperson characterized Circle's push to publish the arbitration record as an attempt to distract from the company's refusal to honor USDC redemptions. Heka dropped its opposition to public filing, and Circle's petition to confirm the award is now unopposed.
FAQ
What did Circle conclude about Heka Funds' trading activity in December 2023?
Circle concluded in December 2023 that Heka Funds may have been manipulating the market to benefit Tether, Circle's largest competitor in the stablecoin market. This conclusion led Circle to suspend Heka's minting and redemption services on December 1, 2023, according to arbitration documents made public in a Boston federal court on Tuesday.
Why did the arbitrator side with Circle in the contract dispute?
Retired judge Robert L. Dondero ruled that Circle's user agreement gave the company the right to change limits "as we deem necessary" and to suspend services "without notice and without liability" under Delaware law. Dondero found that Circle never had to prove manipulation occurred, only that it reached a reasonable conclusion that manipulation might be occurring. The arbitrator found no breach of contract by Circle.
