Key Takeaways
- • Circle won arbitration against Heka Funds, a Tether-backed cryptocurrency investment fund, dismissing a $49 million damages claim filed by Heka in 2024 over an account freeze imposed in late 2023.
- • Circle froze Heka's account on suspicion of market manipulation involving large-scale arbitrage during the March 2023 SVB crisis, when USDC traded below parity; Circle alleged Heka purchased discounted stablecoin and redeemed it for dollars, with recovered funds flowing to Tether to expand USDT supply.
- • An arbitrator ruled in February 2026 that Heka's actions were malicious and dismissed all claims; the fund was ordered to pay Circle approximately $166,000 in legal and expert fees, strengthening Circle's enforcement authority over platform access.
- • The arbitration outcome confirms Circle's contractual right to remove participants from its platform based on suspected market manipulation, establishing precedent in the competitive stablecoin market between Circle's USDC and Tether's USDT.
Summary
Circle Internet Financial has secured a decisive arbitration victory against Heka Funds, a cryptocurrency investment vehicle backed by Tether, after the stablecoin issuer froze the fund's account in late 2023 on market manipulation suspicions. According to the Financial Times, Circle alleged that Heka engaged in large-scale arbitrage designed to disrupt market order and facilitate Tether's expansion of its stablecoin dominance.
The dispute originated during the acute liquidity crisis surrounding Silicon Valley Bank's collapse in March 2023, when USDC temporarily fell below its $1 peg. Circle's investigation revealed that Heka purchased significant quantities of the discounted stablecoin and subsequently redeemed it for U.S. dollars directly from Circle. The issuer contended that Heka's redemption volumes substantially exceeded those of other market participants and that the recovered capital ultimately flowed to Tether for deployment in expanding USDT supply.
Heka Funds responded by filing for arbitration in 2024, claiming approximately $49 million in lost profit opportunities stemming from the account freeze. However, in February 2026, the arbitrator dismissed all claims and determined that Heka's conduct was malicious. The arbitral award required Heka to reimburse Circle approximately $166,000 in legal fees and expert costs, establishing a significant financial and reputational setback for the Tether-affiliated fund.
The arbitration outcome reinforces Circle's authority to enforce platform access restrictions based on suspected market manipulation and provides contractual validation for account freezes tied to competitive conduct. The ruling carries broader implications for stablecoin market structure as competition between Circle's USDC and Tether's USDT intensifies. Neither Circle nor Tether provided substantive public comment on the arbitration decision. Heka denied the manipulation allegations, noting it has not been subject to regulatory investigation regarding the matter.
The dispute originated during the acute liquidity crisis surrounding Silicon Valley Bank's collapse in March 2023, when USDC temporarily fell below its $1 peg. Circle's investigation revealed that Heka purchased significant quantities of the discounted stablecoin and subsequently redeemed it for U.S. dollars directly from Circle. The issuer contended that Heka's redemption volumes substantially exceeded those of other market participants and that the recovered capital ultimately flowed to Tether for deployment in expanding USDT supply.
Heka Funds responded by filing for arbitration in 2024, claiming approximately $49 million in lost profit opportunities stemming from the account freeze. However, in February 2026, the arbitrator dismissed all claims and determined that Heka's conduct was malicious. The arbitral award required Heka to reimburse Circle approximately $166,000 in legal fees and expert costs, establishing a significant financial and reputational setback for the Tether-affiliated fund.
The arbitration outcome reinforces Circle's authority to enforce platform access restrictions based on suspected market manipulation and provides contractual validation for account freezes tied to competitive conduct. The ruling carries broader implications for stablecoin market structure as competition between Circle's USDC and Tether's USDT intensifies. Neither Circle nor Tether provided substantive public comment on the arbitration decision. Heka denied the manipulation allegations, noting it has not been subject to regulatory investigation regarding the matter.
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