Sphere 3D’s legal issues escalate as Gryphon seeks to block $10M

The legal battle between Bitcoin miners Sphere 3D and Gryphon Digital Mining has gotten another chapter on March 25, as a new legal action seeks to block $10 million from a recent settlement. 

In a pre-motion letter filed by Gryphon with the U.S. District Court for the Southern District of New York, the miner requests permission to file a motion for prejudgment attachment, seeking to secure $10 million in equity proceeds that Sphere recently received from a settlement related to Core Scientific’s bankruptcy exit.

Gryphon wants to ensure that the funds are available to satisfy any judgment it may receive due to Sphere’s alleged breach of contract, which has damages amounting to at least $30 million. Sphere is accused of entering into at least four hosting agreements with other providers, violating the exclusivity clause of their agreement with Gryphon.

Gryphon’s letter requesting permission to file a motion. Source: Hogan Lovells/Gryphon.

Behind the pre-motion letter lies Sphere’s financial health. According to Gryphon’s letter based on Sphere’s annual report to the Securities and Exchange Commission, the company has publicly acknowledged its potential for bankruptcy, suggesting it may not be able to satisfy future judgments.

“Over the last four months, Sphere has revealed its growing financial troubles. On November 28, 2023, in a filing in the Core Bankruptcy Action, Sphere’s counsel acknowledged that the company was operating with a $200 million net loss and that recent losses had overtaken revenue by a two-to-one margin,” reads the letter.

According to Sphere’s latest earnings report from March 13, the company’s net loss for 2023 was $23.4 million, compared to $192.8 million the previous year, as the crypto winter hit miners.

The companies have been partners since August 2021 and even considered merging under the Gryphon brand. However, in April 2023, Sphere first sued Gryphon after an alleged spoofing attack led to the irregular transfer of Bitcoin.

In January 2023, Gryphon CEO Rob Chang was allegedly scammed into sending 18 Bitcoin (BTC) to a spoofing attacker posing as Sphere 3D’s chief financial officer. A few days later, eight more BTC were sent to the same address. At the time, Gryphon claimed to be a victim of Sphere’s “gross negligence” that allowed activities from malicious actors.

In addition to dismissing allegations related to the transfer of assets, Gryphon has filed claims against Sphere 3D for breach of contract, negligence, and defamation. The partnership was terminated in October 2023.

Cointelegraph reached out to Sphere 3D, but did not receive an immediate response.

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