Circle suspends Tether-backed Heka fund over market concerns

A federal court in Boston has unsealed documents revealing that Circle Internet Financial, the issuer of the USDC stablecoin, lawfully suspended a major client in late 2023 over suspicions of market manipulation designed to benefit its chief rival, Tether. The documents, part of a petition to confirm an arbitration award, detail how Circle suspended the minting and redemption services for Heka Funds' Elysium Global Arbitrage Fund on December 1, 2023, after determining the fund had concealed Tether's role as its dominant financial backer.

The arbitration, overseen by retired judge Robert L. Dondero, concluded in February 2024 that Circle acted within its contractual rights. Dondero ruled that Heka's failure to disclose its ties to Tether was intentional, an omission he wrote appeared designed to avoid revealing Tether's involvement. Circle's Chief Business Officer, Kash Razzaghi, testified the company would never have approved the account, opened in January 2022, had it known of the connection from the start.

The trading activity in question began in March 2023 following the collapse of Silicon Valley Bank, which temporarily pushed USDC's value below its $1 peg. According to...