Circle blocked Tether-backed investment fund Heka Funds from its platform in late 2023 over suspected USDC manipulation, and an arbitrator this February rejected Heka’s $49 million damages claim over the ban.
Circle alleged Heka exploited discounted USDC during the Silicon Valley Bank crisis to help rival stablecoin Tether gain market share. The ruling, laid out in a petition Circle filed in Massachusetts federal court, shows how far the two largest stablecoin issuers will go to police trading on their own platforms.
What Happened
The dispute traces back to March 2023, when USDC briefly lost its dollar peg during the Silicon Valley Bank collapse. Circle said Heka repeatedly bought discounted USDC and redeemed it for dollars in unusually large volumes, a pattern detailed in the petition Circle filed in Massachusetts federal court, case number 1:26-cv-13095.
Circle suspected the redeemed dollars were flowing to Tether, helping USDT grow at USDC’s expense. According to Binance News, which cited court filings reported by the Financial Times, Tether had invested roughly $800 million in Heka, about 75% of the fund’s assets, and had waived minting fees for it. The arbitrator found Heka did not fully disclose its Tether relationship and knew that tie would concern Circle.
Heka had sought $49 million in lost profits from the ban, filing for arbitration in 2024. The arbitrator rejected every claim, found Heka acted in bad faith, and ordered it to pay Circle roughly $166,000 in legal and expert costs. Heka denies manipulating markets and says it has never faced a regulatory investigation over the trades. Circle and Tether have not commented publicly.
What This Means for Stablecoin Holders
For everyday USDC and USDT users, the case shows that issuers can and do cut off accounts they see as risky, without a regulator involved. It fits a broader stablecoin race that recently topped $300 billion, tracked in our crypto news coverage, including Circle’s past handling of account restrictions
Judge Joun’s Ruling on Circle’s Confirmation Bid
Circle’s July 6 petition asks the federal court, before Judge Myong J. Joun, to formally confirm the arbitration award and issue a declaratory judgment. A confirmation order would turn the arbitrator’s findings into an enforceable federal judgment. No hearing date had been set as of publication.
What This Means for You
If you hold USDC or USDT, this case is a reminder that both tokens are run by private companies, not decentralized protocols, and each can freeze or cut off an account long before any court gets involved. Circle didn’t need a subpoena to shut Heka out in 2023, and the same discretion applies to any account either issuer decides looks risky.
Before treating a stablecoin balance as risk-free cash, it’s worth remembering that redemption and account access ultimately depend on the issuer’s judgment, not just the blockchain.
This article is for informational purposes only and does not constitute financial advice. Do your own research before making any investment decisions.
