Gryphon Digital Mining Files Legal Action Against Sphere 3D Amid Ongoing Dispute
Summary:
The legal dispute between Bitcoin miners Sphere 3D and Gryphon Digital Mining escalates further as Gryphon files a legal action to freeze $10 million from Sphere's recent settlement. This is a move to ensure the availability of funds for potential judgements against Sphere for an alleged contract breach. Among other issues, Sphere is accused of violating the exclusivity clause in their agreement by entering hosting agreements with other providers. Sphere's financial instability is also under scrutiny, with the company revealing its bankruptcy potential and its inability to fulfill future judgements. The origins of this dispute trace back to Sphere’s alleged gross negligence that allowed a spoofing attack leading to irregular transfer of Bitcoin.
On March 25, the ongoing legal clash between Bitcoin mining operations, Sphere 3D and Gryphon Digital Mining, escalated with fresh litigation seeking to freeze $10 million from a recent payout. This legal measure, filed as a pre-motion letter by Gryphon in the U.S. District Court for the Southern District of New York, requests approval to lodge a motion for prejudgment attachment. This aims to secure the $10 million from a settlement that Sphere recently gained in relation to Core Scientific’s departure from bankruptcy. The move is a precautionary step to ensure that any forthcoming judgement Gryphon might secure against Sphere, allegedly for contract infringement with damages to the tune of at least $30 million, can be fulfilled. Sphere stands accused of entering into distinct hosting contracts with other providers, undermining the exclusivity element in their agreement with Gryphon.
The subtext to this pre-motion letter is Sphere’s shaky finances. Gryphon's letter, which draws on Sphere’s yearly report to the Securities and Exchange Commission, highlights that Sphere has openly revealed its bankruptcy risk, casting doubts on its ability to fulfill future judgements.
Details within Gryphon’s letter reveal that over the past quadrimester, Sphere’s increasing financial instability has become evident. A filing from November 28, 2023 in the Core Bankruptcy Action stated, Sphere's counsel recognized the company's operating losses are around $200 million and that sphere’s recent losses have doubled their income. Sphere reported a net loss of $23.4 million for 2023 in its latest earnings report unveiled on March 13, compared to a $192.8 million shortfall the year before, as crypto winter took its toll on miners.
Since August 2021, the two firms have collaborated and thought about consolidating under the Gryphon umbrella. However, Sphere kicked-off litigation against Gryphon in April 2023 citing a purported spoof attack that resulted in irregular Bitcoin transfers. In January 2023, Gryphon alleges that its CEO Rob Chang was duped into dispatching 18 Bitcoin (BTC) to a con artist impersonating the CFO of Sphere 3D. A couple of days later, eight BTC more were transferred to the same address. Gryphon claims they were victims of Sphere’s "gross negligence" that enabled wrongdoers to exploit the situation.
Gryphon has also lodged allegations against Sphere 3D in addition to rejecting charges related to asset transfers, stating that Sphere 3D breached contract, was negligent, and committed defamation. The collaboration was called off in October 2023. Sphere 3D was unable to provide an immediate comment when contacted by Cointelegraph.
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Published At
3/30/2024 8:01:40 PM
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