Sphere 3D Refutes Gryphon's Claims of Financial Instability in Brewing Bitcoin Legal Dispute
Summary:
Bitcoin mining firm, Sphere 3D, countersuits Gryphon Digital Mining's recent request to secure $10 million in equity, claiming the allegation of financial instability is misleading. Gryphon previously sought to freeze Sphere 3D's funds, citing that the company was unable to cover potential future breach of contract judgments worth $30 million. Despite the tough market environment, Sphere 3D argues they're financially stable, with $45 million in assets and $5 million in liabilities. The legal dispute between the two firms ensued after Sphere accused Gryphon of an unauthorized Bitcoin transfer of 26 BTC, leading to mutual accusations of breach of contract.
Sphere 3D, a Bitcoin mining company, has rejected claims of financial instability, describing the allegations from its previous associate Gryphon Digital Mining as grossly misleading. In legal documentation seen by Cointelegraph, Sphere 3D dismissed the charges made by Gryphon a few days prior to the U.S. District Court for the Southern District of New York, in which the latter demanded a freeze on multiple millions of dollars, arguing that Sphere was on the brink of financial failure.
On the 25th of March, Gryphon sought judicial consent to initiate a motion to secure $10 million worth of equity proceeds that Sphere had recently obtained from a settlement linked to Core Scientific’s departure from bankruptcy. Gryphon cited this move as necessary, contending that Sphere would be unable to cover approximated $30 million in forthcoming breach of contract judgments.
Sphere 3D contradicts this, stating it has $45 million in assets and $5 million in liabilities according to its 2023 Annual Report. The document also quoted, “Even if a $30 million judgment was handed down against Sphere tomorrow, they would be in a position to recompense,”.
The company also blamed Gryphon for unnecessarily prolonging proceedings including through later discarded counterclaims. Sphere 3D's reaction to a pre-motion letter registered by Gryphon Digital Mining. Source: Dontzin Nagy & Fleissig/Sphere 3D.
Crypto miners bore the brunt of an economic downturn during the winter of 2022 and 2023. An insider closely acquainted with the lawsuit suggests that Gryphon's attempts to obtain $10 million from Sphere could be due to Gryphon's own fiscal problems.
“Back and forth since April 2023… Gryphon has $18 million in assets and $27 million in liabilities, this equates to a negative working capital of $9 million… Furthermore, according to their loan agreement, all surplus income must be used to pay down their loan with Anchorage,” the insider clarified.
The Master Service Agreement (MSA), in place since 2021, previously bonded Gryphon and Sphere, with Gryphon functioning as the exclusive management services provider for Sphere’s blockchain and cryptocurrency operations. Gron, as instructed by the company, managed and sold certain digital assets for Sphere.
This relationship deteriorated in April 2023 when Sphere commenced legal proceedings against Gryphon following an alleged spoofing incident involving the unauthorized shift of 26 Bitcoin (BTC) to a malicious third party. Gryphon refuted the accusations, claiming Sphere committed gross negligence.
Adding to this, Gryphon maintains that Sphere violated the agreement by initiating four hosting contracts without Gryphon's approval. Sphere counters this, arguing that under the MSA guidelines and in independent dialogues with Gryphon, it had permission to form agreements with third parties. Sphere further suggests that any infractions were minor technical breaches unworthy of Gryphon's demanded damages.
Sphere 3D is also seeking damages in excess of $25 million from Gryphon, citing the failure to lodge a proof of claim in Core Scientific’s insolvency case. Sphere made a deposit of $35 million with Core for hosting services, however, it received only about $1 million in services. Sphere settled with Core for $10 million in equity post bankruptcy.
Sphere's recovery efforts of its deposits were complicated by Gryphon's contract with Core, leading Core to deny Sphere's involvement. This situation was worsened by Gryphon's omission to lodge a proof of claim in Core’s bankruptcy case within the stipulated period.
Published At
4/3/2024 10:18:26 PM
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