An Unusual Conflict of Interest in the Stablecoin Market

When Silicon Valley Bank collapsed in March 2023, the stablecoin USDC temporarily lost its dollar peg and traded at a discount. For most market participants, this was a crisis. For crypto fund Heka Funds, however, it allegedly became a business opportunity of considerable scale.

According to court documents cited by the Financial Times, Heka purchased large quantities of discounted USDC on the open market and then redeemed them with Circle at full dollar value. The practice itself is not illegal — but Circle argued that Heka's redemption volumes "far exceeded those of other market participants," and that the proceeds ultimately flowed to Tether.

Circle argued that redemption volumes from Heka far exceeded those of other market participants — and that the proceeds supported the growth of Tether's USDT.
Circle Exposed Tether Connection: Crypto Fund Accused of Market Manipulation - Bilde 1

Tether Controlled Three-Quarters of the Fund

What truly escalated the conflict was not the arbitrage strategy in isolation, but the concealed ownership structure behind Heka.

Arbitration materials show that Tether had invested approximately $800 million in the fund — equivalent to roughly 75 percent of Heka's total assets. In addition, Tether had apparently waived minting fees for Heka. The arbitrator found that Heka had been neither transparent about this relationship nor about its actual ownership structure, and that the fund was aware such disclosures would have been material to Circle.

Heka Funds SICAV plc is registered in Malta and is managed by London-based Abraxas Capital Management.

Circle Exposed Tether Connection: Crypto Fund Accused of Market Manipulation - Bilde 2

Arbitration Tribunal: Heka Acted in "Bad Faith"

In February 2026, the arbitration tribunal issued a ruling in Circle's favor on all counts. The arbitrator concluded that Heka had acted in bad faith, citing in particular its lack of transparency regarding the Tether connection.

Heka, for its part, denies any form of market manipulation and states that the fund has never been subject to regulatory investigation in connection with the matter. Circle has declined to comment on the case, and Tether has also not responded to media inquiries.

$800M
Tether's investment in Heka
$49M
Heka's claim in arbitration
$166K
Costs Heka was ordered to pay

Strategic Backdrop: The War for Stablecoin Dominance

The case illustrates the tensions that exist in a stablecoin market dominated by two major players. Tether's USDT has a market capitalization of approximately $120 billion, while Circle's USDC stands at roughly $40 billion as of July 2026. The rivalry between the two is well documented.

Whether Tether deliberately used Heka as an instrument to undermine USDC and strengthen its own position during the SVB crisis has not been conclusively established in court — the arbitration award addresses Heka's conduct, not Tether's directly. Nevertheless, the case sheds new light on the complex ownership structures behind the players operating at the interface between the two stablecoin giants.

The case raises questions about where the line falls between legitimate arbitrage and coordinated market manipulation in an unregulated stablecoin landscape.

Risk-Off Sentiment Weighs on the Market

The news comes amid a market characterized by caution: Bitcoin is trading at around $64,576 as of July 15, 2026, and the Fear & Greed Index stands at 25 out of 100 — indicating significant fear among investors. In such a climate, revelations about conflicts of interest and potential market manipulation could further erode confidence in the stablecoin segment.

Sources: Financial Times Markets; Circle Internet Financial, LLC, case no. 1:2026cv13095, U.S. District Court for the District of Massachusetts