The legal dispute between Bitcoin miners Sphere 3D and Gryphon Digital Mining took a new turn on March 25 as Gryphon initiated further legal action to halt a $10 million settlement awarded to Sphere.
Gryphon filed a pre-motion letter in the U.S. District Court for the Southern District of New York, seeking permission to file a motion for prejudgment attachment. This motion aims to secure $10 million in equity proceeds received by Sphere from a settlement related to Core Scientific's bankruptcy exit. Gryphon seeks to ensure that these funds are available to satisfy any potential judgment resulting from Sphere's alleged breach of contract, which Gryphon estimates could lead to damages exceeding $30 million.
The accusations against Sphere revolve around its purported breach of exclusivity clauses in its agreement with Gryphon. Sphere is alleged to have violated these clauses by entering into multiple hosting agreements with other providers.
The pre-motion letter sheds light on Sphere's financial situation, suggesting potential insolvency. Gryphon cites Sphere's annual report to the U.S. Securities and Exchange Commission, which reveals significant operating losses. Sphere's financial challenges were underscored by its operating net loss of $200 million, as acknowledged by its attorneys in a filing related to the Core Scientific bankruptcy action.
Sphere's latest earnings report, released on March 13, further reflects its financial struggles. The company reported a net loss of $23.4 million in 2023, a significant decline from the previous year's loss of $192.8 million, largely attributed to adverse market conditions during the cryptocurrency downturn.
Despite their partnership since August 2021 and considerations for a potential merger under the Gryphon brand, tensions between Sphere and Gryphon escalated in April 2023. Sphere initiated legal action against Gryphon, alleging spoofing attacks that led to irregular Bitcoin transfers. Gryphon, in turn, accused Sphere of negligence, defamation, and breach of contract, following incidents where Gryphon's CEO was allegedly misled into transferring Bitcoins to a fraudulent address.
The fallout from these allegations ultimately led to the termination of the partnership between Sphere 3D and Gryphon in October 2023, marking the end of their collaborative efforts in the Bitcoin mining sector.
