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- The arbitration focused on Circle’s decision to suspend Heka Funds’ access to USDC redemptions during the turmoil at the Silicon Valley bank.
- The arbitrator found that Hika failed to disclose the extent of its financial relationship with Tether.
- Heka’s $49 million damages claim was dismissed, while Circle was awarded legal and expert costs.
- This case highlights the importance of transparency and counterparty risk in institutional stablecoin markets.
According to the Financial Timescourt filings announced this week shed new light on the private arbitration between the Circle and Heka funds, detailing the events that led the USDC issuer to suspend the fund’s redemption privileges during the 2023 Silicon Valley bank turmoil.
The recordings form part of Circle’s efforts to confirm the arbitration award after the proceedings end in February 2026. While the outcome was already known, supporting documents reveal previously secret evidence presented during the case.
The department raised concerns about Hika’s business activity
According to the information, Circle became concerned after Heka redeemed unusually large amounts of USDC while the stablecoin temporarily traded below its dollar peg following the collapse of the Silicon Valley bank.
The company argued that the redemptions were not merely an arbitrage strategy. Instead, it claimed the proceeds were directed towards Tether, boosting USDT at a time when confidence in USDC was weak.
The central issue in the arbitration was Heka’s relationship with Tether.
The evidence presented during the proceedings showed:
- Tether has invested nearly $800 million in Heka, representing about 75% of the fund’s assets.
- Tether waived some USDT seigniorage fees for the fund.
- Circle said the arrangements should have been disclosed when Heka established the clawback relationship with the company.
The USDC source confirmed that knowledge of Heka’s relationship with Tether would have changed the risk assessment when evaluating the redemption relationship.
The arbitrator found that Hika acted in bad faith
Retired Judge Robert Dondero, who presided over the arbitration, ruled in favor of Circle.
According to the decision, Heka intentionally failed to disclose its relationship with Tether despite being aware that doing so was likely to raise what the arbitrator described as “bells and whistles of concern” within Circle.
The ruling rejected Hika’s claim for approximately $49 million in lost profits and ordered the fund to reimburse Circle approximately $166,000 in legal and expert fees.
Heka has denied involvement in market manipulation and maintained that it has never been the subject of any regulatory investigation. The company also argued that Circle’s efforts to make the arbitration files public are intended to divert attention away from the questions Surrounding USDC Coping during an SVB crisis.
The case extends beyond the contract dispute
While the arbitration focused on contractual obligations rather than allegations of market manipulation, the newly disclosed records provide a rare glimpse into how stablecoin issuers monitored institutional counterparties during one of the most volatile periods in the sector.
The actions also demonstrate how redemption relationships have become an important risk management tool for stablecoin issuers. Beyond holding reserves, companies are increasingly scrutinizing who has access to liquidity and how recovered funds may impact broader market dynamics.
As the stablecoin market continues to attract more institutional participation and regulatory oversight, the dispute underscores that transparency, governance, and counterparty disclosure are becoming as important as liquidity and market share in the competition between major issuances.
