Key Takeaways
- • Circle suspended Heka Funds' account in late 2023 after alleging the fund engaged in large-scale USDC arbitrage to manipulate markets and benefit rival stablecoin issuer Tether during the Silicon Valley Bank crisis.
- • Heka initiated arbitration seeking approximately $49 million in damages for lost profits resulting from the account suspension, but an arbitrator rejected all claims in February 2026 and found bad-faith conduct by Heka.
- • The arbitrator ordered Heka to pay Circle approximately $166,000, establishing a legal precedent that Circle's market manipulation concerns and enforcement actions against the fund were justified.
- • The dispute centers on Heka's trading activity during the March 2023 SVB crisis when USDC temporarily fell below its $1 peg; Heka allegedly exploited this discount by purchasing discounted USDC to profit from the arbitrage opportunity while supporting Tether's competitive positioning.
- • The court filings reveal tensions between stablecoin issuers and crypto funds over market integrity, with Circle taking enforcement action based on suspected CFT (crypto funds/trading) compliance violations and alleged market manipulation tactics.
Summary
Circle, the issuer of the $73 billion USDC stablecoin, barred Heka Funds from its platform in late 2023 based on allegations of market manipulation and USDC arbitrage violations during the Silicon Valley Bank crisis. According to court documents filed in federal court in Boston, Circle suspected Heka of exploiting a temporary depeg in USDC—which briefly fell below its $1 peg during the March 2023 banking turmoil—to execute large-scale arbitrage trades that would benefit Tether, a competing stablecoin issuer with ties to Heka's ownership structure.
During the SVB crisis, Heka reportedly purchased discounted USDC, taking advantage of the temporary price deviation to generate arbitrage profits while simultaneously supporting Tether's market positioning against Circle. Circle cited CFT compliance violations and alleged market manipulation as justifications for freezing Heka's account. The enforcement action reflected growing concern among stablecoin platforms about coordinated trading activity designed to destabilize their assets or gain unfair competitive advantage.
Heka responded by initiating arbitration in 2024, seeking approximately $49 million in damages for lost profits and business interruption resulting from the account suspension. However, the arbitrator rejected all of Heka's claims in February 2026, finding bad-faith conduct by the fund. The arbitrator's decision sided entirely with Circle's enforcement rationale, establishing that the suspension was legally justified. As a result, Heka was ordered to pay Circle approximately $166,000 in costs and damages.
The arbitration outcome reinforces Circle's authority to enforce trading restrictions based on market manipulation concerns and compliance violations, while also establishing legal precedent that stablecoin issuers can take unilateral action against funds suspected of exploiting temporary price dislocations for competitive advantage. The dispute underscores ongoing friction within the crypto ecosystem between major stablecoin issuers competing for market dominance, and the role of enforcement mechanisms in policing potentially manipulative trading strategies.
During the SVB crisis, Heka reportedly purchased discounted USDC, taking advantage of the temporary price deviation to generate arbitrage profits while simultaneously supporting Tether's market positioning against Circle. Circle cited CFT compliance violations and alleged market manipulation as justifications for freezing Heka's account. The enforcement action reflected growing concern among stablecoin platforms about coordinated trading activity designed to destabilize their assets or gain unfair competitive advantage.
Heka responded by initiating arbitration in 2024, seeking approximately $49 million in damages for lost profits and business interruption resulting from the account suspension. However, the arbitrator rejected all of Heka's claims in February 2026, finding bad-faith conduct by the fund. The arbitrator's decision sided entirely with Circle's enforcement rationale, establishing that the suspension was legally justified. As a result, Heka was ordered to pay Circle approximately $166,000 in costs and damages.
The arbitration outcome reinforces Circle's authority to enforce trading restrictions based on market manipulation concerns and compliance violations, while also establishing legal precedent that stablecoin issuers can take unilateral action against funds suspected of exploiting temporary price dislocations for competitive advantage. The dispute underscores ongoing friction within the crypto ecosystem between major stablecoin issuers competing for market dominance, and the role of enforcement mechanisms in policing potentially manipulative trading strategies.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.