Circle suspended Tether-backed Heka Funds over USDC market manipulation

In December 2023, Circle quietly pulled the plug on Heka Funds, a Malta-based trading firm with deep ties to Tether. The reason: suspected market manipulation designed to benefit USDT at USDC’s expense. The full story stayed under wraps until July 14, 2026, when the Financial Times published findings from the subsequent arbitration.

The arbitrator sided with Circle. Heka had sought $49 million in lost profits. It walked away with nothing.

What Heka was actually doing

Heka Funds, associated with London’s Abraxas Capital Management, was not some small-time operation. The firm ran large-scale USDC redemptions and arbitrage strategies through Circle’s platform, and by its own account, those strategies had delivered returns exceeding 100% since inception.

Tether was historically one of Heka’s largest clients. That relationship never made it into Heka’s disclosures to Circle.

The arbitrator found that Heka intentionally withheld its connection to Tether, a fact that turned out to be central to the entire dispute. The arbitrator’s finding on non-disclosure was enough to end Heka’s claim.

The stablecoin market context

The stablecoin market had grown to approximately $307 billion by the time the arbitration findings became public, with USDC and USDT accounting for the dominant share of that figure.

Tether has not been named as a direct party to the dispute. The connection runs through Heka’s client relationships, not any formal Tether instruction to manipulate Circle’s markets.

What investors and traders should take from this

Heka’s entire arbitration claim collapsed not because Circle couldn’t prove manipulation, but because Heka couldn’t prove it was operating in good faith when it hid a material conflict of interest.

Circle’s willingness to fight a $49 million arbitration claim rather than settle signals that it views platform integrity as a non-negotiable. For retail and institutional investors holding USDC, the short version is that Circle won, and the redemption mechanism functioned as intended under stress. The less comfortable version is that a sophisticated firm with ties to the world’s largest stablecoin issuer was running strategies on Circle’s platform that Circle considered manipulative, and nobody found out for nearly three years.

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