FT: Circle previously blocked a crypto fund account backed by Tether, and later secured favorable arbitration rulings.

According to a Financial Times report, newly unsealed court documents show that stablecoin issuer Circle blocked Tether-backed crypto fund Heka Funds at the end of 2023, suspecting it of manipulating markets via large-scale arbitrage operations and helping Tether expand its market share. The documents note that during the 2023 Silicon Valley Bank (SVB) crisis, USDC briefly broke below its $1 peg. Heka continuously purchased large amounts of discounted USDC and redeemed it for U.S. dollars from Circle. Circle deemed Heka’s redemption volume far exceeded that of other market participants, and suspected the funds ultimately flowed to Tether to help grow USDT’s market size. Arbitration documents also disclose that Tether invested approximately $800 million in Heka, accounting for around 75% of the fund’s assets, and waived stablecoin minting fees. Arbitrators found that Heka failed to truthfully disclose Tether’s backing relationship and knew the information would raise concerns at Circle. In 2024, Heka filed an arbitration claim after its account was blocked, seeking around $49 million in lost profits. In February this year, arbitrators rejected all of Heka’s claims, ruling it had engaged in malicious conduct and ordered it to pay Circle approximately $166,000 in legal and expert fees. Heka denied market manipulation and stated it had never faced regulatory investigations over the matter. Circle declined to comment, while Tether did not respond to media requests for comment.