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As Core Scientific approaches the final hearing next week to exit bankruptcy, it has reached a settlement with Sphere 3D and Gryphon Digital Mining to resolve a $34 million unsecured claim resulting from 70,000 miners that never existed.
According to Core’s filing earlier this week, it is seeking the bankruptcy court’s approval for an agreement with Sphere and Gryphon, where the total unsecured claims allowed for the two parties will be $10 million.
This recent update on the dispute between Core, Sphere, and Gryphon sheds light on how the grand dreams of bitcoin mining companies during the bull market ended in the crypto winter of 2022.
Sphere and Gryphon are bitcoin mining companies that pursued a merger deal in June 2021 to go public in the U.S., capitalizing on the market exuberance of that time.
Soon after the merger announcement, Core said that Gryphon signed a hosting contract in October 2021 to colocate 70,000 units of Bitmain’s S19 or equivalent models at Core’s facilities.
It would have been a win-win. Gryphon would boast nearly 7 EH/s in proprietary hashrate to materialize the merger deal with Sphere and Core would bring steady revenues from hosting fees.
However, Core alleged that Gryphon breached the contract by not delivering the 70,000 units as per the agreed schedule because of the lack of funding.
Core said that it received only about 300 units by January 2022, and was told by Gryphon on Feb. 11, 2022, that “it would not be able to meet the quantity and type of units it had agreed to and that it was expecting delivery of miners from another manufacturer, NuMiner.”
NuMiner came out of nowhere in a Feb. 3, 2022 press release touting extremely powerful mining equipment while signing Sphere as its “preferred” customer with a preorder of 60,000 units for $1.7 billion. The news was even covered by CoinDesk, which offered no scrutiny on NuMiner until a follow-up piece two weeks later.
In April 2022, Sphere and Gryphon ended their merger plan and soon embroiled themselves in a separate legal dispute.
In a July 2022 production update, Sphere said it canceled the order after NuMiner failed to deliver by the deadline due to “supply chain issues” and had “requested the prompt return of the Company’s $10 million deposit.”
Although neither Sphere nor Gryphon delivered the promised 70,000 miners for colocation, Gryphon made a prepayment of about $35 million. After Core filed for Chapter 11 bankruptcy protection in December 2022, Sphere submitted proof of claims earlier this year seeking a refund of the prepayments.
However, Core argued that the prepayment was not refundable and that it was Gryphon who signed the hosting contract and then breached the contract by failing to deliver the said miners.
Subsequently, Core filed an adversary complaint in November, alleging that Gryphon’s breach of contract caused it more than $100 million in site construction expenses and loss of hosting profits.
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