Circle suspended a Tether-backed arbitrage fund over manipulation fears, unsealed filings show

Circle shut off minting and redemptions for Heka Funds' Elysium Global Arbitrage Fund on Dec. 1, 2023, after concluding the Malta-based fund might be manipulating the market to benefit Tether — Circle's largest competitor — according to arbitration documents made public in a Boston federal court on July 14, per The Block. The filings surfaced as part of Circle's petition to confirm a February arbitration award, which retired judge Robert L. Dondero decided in Circle's favor.

The relationship the dispute turned on came out in discovery. Heka, managed by London-based Abraxas Capital Management, opened a fee-free Circle account in January 2022 and disclosed a single investor, Simon Grima. Circle later determined Tether was Elysium's dominant backer. Per founder Fabio Frontini's testimony, Tether's stake reached roughly $500.2 million by April 28, 2023, and grew to $800 million — about 75% of the fund's assets — by the arbitration. Dondero concluded the omission was "intended to avoid the disclosure of Tether's role." Circle's Kash Razzaghi testified the company would not have opened the account had it known.

The trade itself was ordinary arbitrage. When Silicon Valley Bank's March 2023 collapse pushed USDC below its dollar peg, Heka bought discounted USDC and redeemed it with Circle at par — the same play other funds ran, then abandoned as the spread narrowed. Heka kept going. Circle's own staff split internally: Razzaghi called it "a manufactured arb not a market-driven one," tied to Tether's waived fees; colleague David Norton argued Frontini's trades made rational sense. Circle let Heka redeem more than $587 million over two weeks to test whether the spread would widen without it. It tightened instead. Circle cut Heka's limits to zero in November 2023, then suspended the account after Frontini threatened litigation and a regulatory complaint.

Dondero found no breach: Delaware law and the user agreement let Circle change limits "as we deem necessary" and suspend "without notice and without liability." Circle never had to prove manipulation, only reach a reasonable conclusion it might be occurring.

Key facts

• Suspension date: Dec. 1, 2023, citing Section 9(c) of the master services agreement (The Block, citing court filings).
• Tether's Elysium stake: ~$500.2M (Apr. 28, 2023) rising to $800M / ~75% of assets, per Frontini's testimony.
• Redemptions Circle allowed while testing the thesis: $587M+ over ~two weeks.
• Arbitrator: Robert L. Dondero found no breach; award issued February 2026, now unopposed.
• Fees: Circle sought $5.15M and was denied all but $166,643.25, tied to Heka pursuing a $49M lost-profits claim already foreclosed.

The real-world read

Read the sourcing carefully. This is a competitor's court exhibit: Circle is the party that fought to unseal these records, and the arbitrator's manipulation language is a "reasonable conclusion" standard, not a finding of fact. A Heka spokesperson told the Financial Times the fund never manipulated the market and has never faced any regulatory proceeding over misconduct — and framed the public filing as Circle deflecting from its refusal to honor redemptions. Two things Circle's narrative leaves thin: its own employee Norton initially defended the trades, and Circle processed more than half a billion in redemptions before deciding it was uncomfortable. Also unresolved — Tether, which put another $500M into Elysium in February 2024, is named throughout but was not a party; The Block said it reached Circle and Tether for comment.

Opinion, and whose

• Arbitrator Dondero: the non-disclosure of Tether's role was deliberate, and Circle's suspension was contractually permitted.
• Heka (via spokesperson to the FT): no manipulation occurred; the case is a redemption dispute, not a misconduct one.

Sources

• The Block (Naga Avan-Nomayo), July 15, 2026 — primary reporting on the unsealed Boston arbitration filings, figures, and testimony; itself citing court documents and a Heka statement to the Financial Times. Independent outlet; discloses Foresight Ventures as majority investor.
• Financial Times — quoted secondhand via The Block for Heka's denial.

Not financial advice. This is reporting on a legal dispute, not a comment on any token or its backing.