Circle Wins Arbitration Over Heka Funds' Suspended USDC Account

Retired judge Robert L. Dondero found that Heka Funds failed to disclose that Tether had become its principal investor, accounting for approximately 75% of the Elysium Global Arbitrage Fund’s $800 million in assets. Circle’s Chief Business Officer, Kash Razzaghi, testified that the company would have rejected the account had it known of Tether’s role. The relationship soured in March 2023 following the collapse of Silicon Valley Bank, as Heka capitalized on USDC price fluctuations. Internal communications revealed Circle executives grew concerned that the fund's trading was a "manufactured arb" rather than a market-driven strategy, especially after Coinbase expressed discomfort with Heka’s fee structure and Tether ties.

By November 2023, Circle restricted Heka’s transaction limits before suspending the account entirely in December. Dondero ruled that Circle was not required to prove actual market manipulation, only that it reached a reasonable conclusion that such activity was occurring under the terms of its master services agreement. While the arbitrator denied Circle’s request for $5.15 million in legal fees, he awarded $166,643.25 for expert costs. A spokesperson for Heka denied any wrongdoing, describing the public disclosure of the arbitration records as a distraction from Circle’s refusal to process redemptions. The ruling solidifies Circle's discretion in managing institutional accounts as the firm pivots toward expanding its global banking footprint and regulatory standing.