Core Manipulation Concerns

Circle suspended the accounts of Heka Funds (managed by Abraxas Capital Management) in December 2023 after concluding the fund was engaged in "manufactured arbitrage" designed to benefit Tether (USDT) at the expense of USDC. The details of this suspension and the subsequent legal battle became public on July 14, 2026, following the unsealing of arbitration documents in a Boston federal court [Source: https://www.theblock.co].

Core Manipulation Concerns

Circle's decision to suspend the fund was based on three primary concerns regarding market integrity and transparency:

• Undisclosed Tether Backing: When Heka opened its account in January 2022, it disclosed only a single investor. In reality, Tether was the fund's dominant backer, contributing approximately $800 million, which represented roughly 75% of the fund's assets [Source: https://www.theblock.co]. Circle's Chief Business Officer testified that the account would never have been opened had this conflict of interest been disclosed [Source: https://cryptobriefing.com].
• "Manufactured" Arbitrage: Circle identified trading patterns that appeared artificial rather than market-driven. Tether had granted Heka a unique fee waiver for minting USDT, allowing Heka to execute large-scale arbitrage strategies—such as redeeming over $587 million in USDC in a single two-week period—that were only profitable because of the special arrangement with Circle's primary competitor [Source: https://www.ft.com].
• Market Engineering: Circle suspected Heka was intentionally engineering customer trading to suppress USDC's market position while bolstering USDT. Internal communications described Heka's trades as "manufactured" to benefit Tether [Source: https://www.theblock.co].

Arbitration Findings and Legal Outcome

The arbitrator, retired Judge Robert L. Dondero, ruled in Circle's favor, dismissing Heka's $49 million claim for lost profits. Key findings from the ruling include:

The arbitrator found that Heka's failure to disclose Tether's involvement was "deliberate" and intended to circumvent Circle's onboarding scrutiny [Source: https://cryptobriefing.com]. Furthermore, Circle's Master Services Agreement (MSA) was upheld, confirming the issuer's right to change limits or suspend services "without notice and without liability" to protect platform integrity [Source: https://www.theblock.co].

While Tether's total investment reached approximately $800 million, specific claims regarding an additional $500 million investment or a denied $100 million redemption request in February 2024 have not been independently confirmed [Note: not independently confirmed].