Circle wins arbitration after blocking Heka’s USDC minting and redemptions, court filings show
Circle has prevailed in a court-backed arbitration fight with Malta-based Heka Funds over why it suspended the fund’s ability to mint and redeem USDC. Newly public records in a Boston federal court — filed as part of Circle’s petition to confirm a February arbitration award — lay out the company’s reasoning: Heka’s onboarding omissions and trading that Circle reasonably suspected could have been used to manipulate the USDC market, driven in large part by Tether.
Key findings and timeline
- Heka Funds (Elysium Global Arbitrage Fund), managed by London-based Abraxas Capital Management, opened a Circle account in January 2022. During onboarding Heka disclosed only investor Simon Grima, but did not disclose that Tether had become its dominant capital provider.
- Testimony showed Tether’s investment in Elysium reached roughly $800 million by arbitration — about 75% of the fund’s assets. Arbitrator Robert L. Dondero concluded the omission was intentional and appeared designed to conceal Tether’s role. Circle said it would not have approved the account had it known of the Tether connection.
- The conflict escalated after Silicon Valley Bank’s collapse in March 2023 temporarily pushed USDC below $1. Heka bought discounted USDC on secondary markets and redeemed those tokens with Circle at face value, continuing after many arbitrageurs had stopped once spreads tightened. Over a two-week period Circle allowed Heka to redeem more than $587 million in USDC while it tested whether the opportunity depended on Heka’s activity.
- Internal Circle communications showed executive disagreement over whether Heka’s activity was legitimate arbitrage. Circle CBO Kash Razzaghi described it as “a manufactured arb not a market-driven one,” suggesting Tether may have waived fees to enable the trades. Another employee initially viewed the trades as commercially rational but later reversed that view after pausing Heka and seeing spreads compress.
- Coinbase told Circle it was uncomfortable given Heka’s Tether relationship and fee structure and placed restrictions on the account. Circle reduced Heka’s mint/redeem limits to zero in November 2023 and suspended the account on Dec. 1 under Section 9(c) of the master services agreement after Heka founder Fabio Frontini threatened legal and regulatory action. A March 2024 redemption request for $100 million was rejected; the agreement then expired. According to testimony, Tether invested an additional $500 million in Elysium in February 2024 before Heka filed its arbitration claim.
Arbitration ruling and costs
- Applying Delaware law, arbitrator Dondero found Circle did not breach its contracts. The user terms gave Circle discretion to adjust limits and suspend services; Circle was not required to prove manipulation occurred, only that it reasonably believed manipulation might be taking place.
- Circle had sought roughly $5.15 million in legal fees and costs; Dondero awarded only $166,643.25 tied to expert work, rejecting a lingering $49 million lost-profits claim Heka continued to pursue.
Heka response and additional issues
- Heka told the Financial Times it never engaged in market manipulation and denied being the subject of any regulatory probes. The fund also accused Circle of publicizing the arbitration record to divert attention from refusing USDC redemptions.
- The arbitration record also noted Frontini applied for a Circle France account shortly before the hearing without disclosing the dispute and submitted a board resolution asserting Heka had an active Circle relationship; he later testified he expected the U.S. application to fail.
Broader context for Circle
The disclosure arrives as Circle continues to scale its institutional business. The company recently received final approval from the U.S. Office of the Comptroller of the Currency to establish Circle National Trust and is preparing an invite-only Current Seoul event on July 23 aimed at bank, exchange and payments executives as it pushes for wider USDC adoption in South Korea.
Bottom line: The arbitrator sided with Circle’s contractual right to curb a counterparty it reasonably suspected of creating a non-market arbitrage, and rejected Heka’s claims — leaving the fund to continue disputing both the facts and the characterization of its trading.
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