Circle suspended Heka Funds over unproven USDC manipulation claims
DeFi & Yields ·
Court filings show an arbitrator found only "reasonable suspicion," not proof, behind Circle's move to cut off the Tether-backed arbitrage fund during the 2023 depeg crisis.
Court filings reviewed by The Block show that Circle suspended Heka Funds, an arbitrage fund backed by Tether, after alleging the fund may have manipulated USDC markets during the stablecoin's 2023 depeg episode. The suspension came after Circle disclosed an $800 million Tether investment, a detail that surfaced alongside the arbitration dispute over Heka's account.
According to the filings, the arbitrator overseeing the dispute did not find that Heka had in fact manipulated USDC markets. Instead, the arbitrator concluded that Circle only needed to demonstrate reasonable suspicion to justify its action, relying on a user agreement provision permitting the company to impose limits "as we deem appropriate." That contractual standard, rather than a factual finding of wrongdoing, appears to have been the basis for upholding Circle's suspension of the fund.
The case surfaces at a moment when Tether-linked entities and Circle have been positioned as rivals across the stablecoin landscape. Tether has separately moved to expand its footprint through initiatives such as a $150 million recovery plan and partnership with Drift intended to displace Circle's USDC, underscoring the competitive backdrop against which the Heka dispute unfolded. Tether itself has continued diversifying well beyond USDT, building out divisions spanning tokenized gold, U.S.-regulated stablecoins, bitcoin mining, and AI robotics investments, even as its reserves and governance draw regulatory scrutiny.
Two distinct sources have corroborated the core elements of the Heka dispute, including the suspension, the $800 million Tether investment disclosure, and the arbitrator's reasonable-suspicion standard. What remains unclear from the filings is whether Heka pursued any further recourse after the arbitration outcome, and whether the episode will affect how Circle's user agreement terms are applied to other institutional accounts going forward. It is also not established what specific trading activity by Heka prompted Circle's initial suspicion during the depeg period.