The Circle Heka USDC arbitration record, filed in the U.S. District Court for Massachusetts on 6 July 2026 under case number 1:2026cv13095, reveals why Circle suspended a Malta-based arbitrage fund’s minting and redemption access: undisclosed Tether involvement and suspected market manipulation during the March 2023 USDC depeg.
Retired judge Robert L. Dondero served as arbitrator and ruled in Circle’s favour on the remaining contract claims. The arbitration outcome became public on 14 July 2026, according to Analytics Insight.
The Circle Heka USDC Arbitration: What the Record Shows
Heka Funds, managed by London-based Abraxas Capital Management, opened a Circle account in January 2022 for its Elysium Global Arbitrage Fund. During onboarding, Heka disclosed only investor Simon Grima. Tether had, in fact, become the fund’s dominant capital provider, with its investment reaching about $800 million by the time of arbitration, accounting for roughly 75% of Elysium’s assets.
Dondero concluded the omission was intentional, finding it appeared designed to conceal Tether’s involvement. Circle Chief Business Officer Kash Razzaghi testified the company would not have approved the account had it known of Tether’s role at the outset.
The trading dispute crystallised after Silicon Valley Bank’s collapse temporarily pushed USDC below its dollar peg. Heka bought discounted USDC in secondary markets and redeemed the tokens with Circle at face value, continuing long after most other arbitrage firms had exited as the spread narrowed. Circle allowed Heka to redeem more than $587 million in USDC over a two-week period while monitoring whether the spread depended on Heka’s own activity.
Internal Circle communications showed disagreement over the trades. Razzaghi described the activity as ‘a manufactured arb not a market-driven one,’ attributing it to Tether waiving its normal fees. Circle employee David Norton initially argued the trades appeared commercially rational, then reversed that position after asking Heka to pause and observing the market spread tighten rather than widen.
Coinbase separately informed Circle it was uncomfortable working with Heka because of the fund’s Tether relationship and fee structure, and placed restrictions on the account.
Contractual Suspension and the Arbitrator’s Ruling
Circle reduced Heka’s minting and redemption limits to zero in November 2023 and suspended the account on 1 December under Section 9(c) of the master services agreement, after Heka founder Fabio Frontini threatened legal and regulatory action. A request to redeem $100 million in February 2024 was rejected, and the agreement expired the following month.
Applying Delaware law, Dondero found Circle did not breach either agreement. The user terms permitted Circle to adjust transaction limits and suspend services at its discretion, and the arbitrator ruled Circle was not required to prove manipulation had actually occurred: a reasonable conclusion that manipulation might be taking place was sufficient.
A separate credibility issue arose when Frontini applied for a Circle France account shortly before the hearing without disclosing the ongoing dispute, submitting a board resolution stating Heka maintained an active Circle relationship. He later testified he had expected the U.S. application to fail.
Circle requested about $5.15 million in legal fees and costs. Dondero awarded only $166,643.25, limited to expert work costs, after finding Heka had continued pursuing a $49 million lost-profits claim that had already been excluded from the case. A Heka spokesperson told the Financial Times the fund had never engaged in market manipulation and had never been the subject of a regulatory investigation for such conduct.
OCC Approval and Circle’s Institutional Push
The arbitration outcome lands as Circle moves aggressively into regulated banking. The company has received final approval from the U.S. Office of the Comptroller of the Currency (OCC) to establish First National Digital Currency Bank, N.A., which will offer fiduciary digital asset custody services, with reserve management planned as a future capability, according to the Circle pressroom.
Circle submitted its national trust bank charter application to the OCC on 30 June 2025. It received conditional approval in December 2025, one of five firms granted conditional charters alongside Ripple, Paxos, BitGo, and Fidelity, as the OCC confirmed at the time. Those five joined approximately 60 national trust banks already under OCC supervision. Circle’s investor relations page notes the company became the first to receive a BitLicense from the New York Department of Financial Services back in 2015.
Of the five conditional approvals, only BitGo had received its unconditional charter before Circle’s final approval came through. Ripple, Paxos, and Fidelity had not yet reached that stage. Banking Dive, citing Yahoo Finance data, reported Circle’s share price jumped 15.6% on the news before settling to an adjusted close up 5.7%.
Circle is also preparing to host its invitation-only Current Seoul event on 23 July, where bank, exchange, and payments executives are expected to discuss USDC adoption in South Korea. Whether the arbitration record’s unflattering detail on USDC’s March 2023 depeg dynamics resurfaces in those conversations is the more interesting question.
