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Compass Mining, a reseller of and hosting service for Bitcoin mining machines, is being sued by its customers to the tune of $2 million.
In a filing to a Florida court on January 17, the customers accused Compass of fraud, breach of contract, and negligence after the company ended its partnership with BitRiver—officially a Switzerland-based business, though most of its operations take place in Russia.
Compass Mining told Decrypt that it is investigating the matter but called the filing "spurious" and that it "strongly believes that the filing has no merit and is missing key elements."
U.S. District Judge Raal Singhal dismissed the filing without prejudice on Wednesday. Echoing Compass' comments, Singhal wrote in his order that the plaintiffs' complaint had "several deficiencies that prevent the Court from moving forward." He cited several required remedies and set a February 3 deadline for a second amended complaint to be filed.
Failure to comply with this Order will result in dismissal of the case without further notice," the judge concluded.
BitRiver hosted Compass’ mining machines at its facilities in Siberia. The lawsuit alleges that the mining host did not attempt to retrieve and return them after the U.S. Treasury's Office of Foreign Asset imposed sanctions on BitRiver.
“BitRiver has refused and ignored all inquiries from Compass customers since ‘all the equipment is owned by Compass,’” reads the plaintiffs’ filing. “Compass should have disclosed to BitRiver they are simply the middleman and the machines paid for and owned by plaintiffs.”
The filing claims that the mining equipment and services rendered in question total more than $1.75 million.
Unpacking Compass, Bitriver arrangement
On March 3, 2022, former Compass CEO Whit Gibbs released a statement in response “to rising tensions between Wefstern Allies and Russia,” as well as to Compass users' growing concerns.
"At this time it is 'business as usual', and there is no reason to be worried. l am monitoring closely how sanctions could impact mining but they don't seem to impact us whatsoever,” read Gibbs’ statement posted to Compass's now-deleted Discord server. “If the situation changes, Compass will take swift action to move all machines out of Russia immediately but at this time drastic action is not needed.''
On April 20, 2022, OFAC imposed sanctions on BitRiver, pursuant to Executive Order 14024, and placed the firm on its Specially Designated Nationals list.
The next day, Compass announced that it had cut ties with BitRiver due to these sanctions.
According to the Florida court documents, Compass representatives told users that the company "is unable to conduct, or even facilitate, any business dealings with the Russian hosting facility."
Plaintiffs allege that OFAC’s sanctions “do not prohibit U.S. entities or persons from winding down or divesting of an existing investment in a project or operation in the Russian Federation."
Compass terms to the rescue?
Compass Mining may have some legal protection from the lawsuit due to its Terms of Service agreement, which states:
"Upon the expiration or termination of this Agreement and Customer’s payment in full of all amounts owed to Compass, Customer shall arrange for the return of the Customer Hardware at Customer’s expense," the terms read.
It is unclear whether the Terms of Service's inclusion of protections against such unforeseeable events could result in early termination of the customer agreement, though such questions may be answered if the plaintiffs' case goes to court.
The lawsuit's plaintiffs claim that the U.S. District Court for the Southern District of Florida has jurisdiction over the case due to Compass transacting "substantial business in this district" even though Compass is incorporated in Delaware.
Editor's note: This article was updated to note the court's dismissal order and subsequent instructions to the plaintiffs.