Bitcoin Miner Dispute Escalates: Gryphon Seeks to Freeze $10M in Settlement Funds

The legal dispute between Bitcoin miners Sphere 3D and Gryphon Digital Mining continues, with Gryphon filing a motion to secure $10 million from a recent settlement in Sphere's favor. Gryphon alleges breach of contract by Sphere and seeks to prevent Sphere from potentially filing for bankruptcy and evading payment of any judgment. The motion highlights Sphere's recent financial struggles, including a $200 million net loss and operating with a negative two-to-one revenue margin. Furthermore, Gryphon claims that Sphere's gross negligence enabled a spoofing attack that led to the transfer of 18 Bitcoin.

Bitcoin Miners' Legal Dispute Intensifies as Gryphon Digital Mining Seeks to Secure $10 Million Settlement

New York, March 25, 2023 - The ongoing legal battle between Bitcoin miners Sphere 3D and Gryphon Digital Mining has taken a new turn, with Gryphon seeking to block $10 million from a recent settlement.

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

Gryphon's legal action stems from allegations that Sphere breached its hosting agreement by entering into contracts with multiple other providers, violating the exclusivity clause. According to Gryphon, these actions have resulted in damages amounting to at least $30 million.

The request for a prejudgment attachment is based on concerns about Sphere's financial health. According to Gryphon's letter, Sphere's annual report to the Securities and Exchange Commission reveals that the company has publicly acknowledged its potential for bankruptcy.

"Over the last four months, Sphere has revealed its growing financial troubles," the letter states. "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."

Despite these financial concerns, Sphere and Gryphon were once partners, having joined forces in August 2021 and even considering a merger under the Gryphon brand. However, the partnership soured in April 2023, when Sphere filed a lawsuit against Gryphon after an alleged spoofing attack resulted in the irregular transfer of Bitcoin.

In January 2023, Gryphon's CEO, Rob Chang, was allegedly tricked into sending 18 Bitcoin (BTC) to a spoofing attacker posing as Sphere 3D's chief financial officer. Days later, eight more BTC were sent to the same address. Gryphon accused Sphere of "gross negligence" in allowing these fraudulent activities.

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

Gryphon's Request for Prejudgment Attachment

According to Gryphon, the $10 million it seeks to secure is equivalent to the potential damages resulting from Sphere's alleged contract breach. The prejudgment attachment would allow Gryphon to seize and hold the funds until a final judgment is reached in the case.

Sphere's Financial Situation

Sphere's financial situation has come under scrutiny in recent months. The company's latest earnings report, released on March 13, showed a net loss of $23.4 million for 2023, compared to $192.8 million the previous year. This loss was attributed to the ongoing crypto winter that has impacted miners across the industry.

Legal Implications

The legal dispute between Sphere and Gryphon is a complex case that raises important questions about contract law and the responsibilities of businesses operating in the cryptocurrency space. The outcome of the case could have significant implications for the industry as a whole.

Cointelegraph Contacted Sphere for Comment

Cointelegraph reached out to Sphere 3D for comment on Gryphon's latest legal action. However, a response was not immediately available.