FT: Circle previously banned a cryptocurrency fund account supported by Tether, and later obtained arbitration rulings in support.

BlockBeats message, July 15, citing a report by the Financial Times: based on the latest publicly available court documents, stablecoin issuer Circle had banned the Tether-backed crypto fund Heka Funds at the end of 2023. The reason was a suspicion that it manipulated the market through large-scale arbitrage operations and helped Tether expand its market share.

The filings show that during the 2023 Silicon Valley Bank (SVB) crisis, USDC briefly fell below its $1 peg. Heka continued to buy large amounts of discounted USDC and redeem it for cash from Circle. Circle believed Heka’s redemption scale was far larger than that of other market participants, and suspected the related funds ultimately flowed to Tether to help it expand the USDT market scale.

The arbitration documents also reveal that Tether invested about $800 million into Heka, representing about 75% of the fund’s assets, and waived stablecoin minting fees. The arbitrator held that Heka did not disclose Tether’s support relationship truthfully, and knew that the relevant information would raise concerns for Circle.

In 2024, Heka filed arbitration after its account was banned, seeking damages of about $49 million for lost profits. In February this year, the arbitrator dismissed all of Heka’s claims, finding that it engaged in malicious conduct, and ordered it to pay Circle about $166k in attorney’s fees and expert expenses. Heka denied any market manipulation and said it had never been subject to regulatory investigations as a result. Circle declined to comment, and Tether did not respond to the media’s request for comment.