Circle wins arbitration against a fund secretly backed by $800M from Tether

An arbitrator rejected a $49 million claim filed against Circle by Heka Funds — and in the process, the proceedings revealed that Tether had secretly supplied the fund with $800 million in capital, with the fund's trades structured to favor rival stablecoin USDT.

Who Is Heka Funds, and What Does Tether Have to Do With It

Heka Funds, managed by London-based Abraxas Capital Management, opened a Circle account in January 2022 for its Elysium Global Arbitrage Fund. During onboarding, the fund disclosed only one investor, Simon Grima — even though, according to arbitration filings, Tether was already becoming the fund's dominant capital provider. Per testimony from Heka founder Fabio Frontini, Tether's investment had grown to about $800 million by the time of the arbitration — roughly 75% of Elysium's total assets.

What Raised Circle's Suspicions

In late 2023, Circle suspended Heka's account after reviewing the fund's trading activity: according to the filings, its trades were systematically structured to favor USDT. Circle Chief Business Officer Kash Razzaghi testified the company wouldn't have approved the account in 2022 had it known about Tether's role, and as early as May 2023 he'd told colleagues the trade looked like "a manufactured arb not a market-driven one," attributing it to Tether waiving its usual fees for the fund.

What the Arbitrator Ruled

Retired judge Robert L. Dondero, serving as arbitrator, applied Delaware law and found that Circle had not breached its agreements: the user terms explicitly allowed the company to adjust limits and suspend service at its own discretion. Dondero separately flagged the fund's incomplete investor disclosure at onboarding:

“To this Arbitrator, this omission was intended to avoid the disclosure of Tether's role in Elysium.”

— Robert L. Dondero, final arbitration award

Quote source: The Block

The arbitrator also noted that Circle wasn't required to prove market manipulation had actually occurred — only that it had reasonable grounds to suspect such activity. The arbitration concluded in February 2026, with the filings becoming public on July 14. Dondero rejected Circle's request for $5.15 million in legal fees but awarded the company $166,643.25 to cover expert costs.

What This Means in Practice

The case formalizes an important precedent for stablecoin issuers: a platform can suspend a client's service based on a reasonable suspicion of manipulation, without needing to prove wrongdoing outright, as long as its user agreement explicitly allows it. For the broader market, the case is a rare public confirmation of just how aggressively competing stablecoin issuers will fight for market share through opaque funding of third-party trading operations.

This material is for informational purposes only and is not investment advice.