For bitcoiners looking to get the latest and most efficient hardware for mining the virtual currency, Butterfly Labs emerged as a prominent name as bitcoin prices surged last year.
But the embattled bitcoin mining firm has been shut down and labeled a “scam” by the Federal Trade Commission.
The FTC said Tuesday that it was granted permission by the US District Court for the Western District of Missouri to freeze Butterfly Labs’ assets and close the company pending trial.
The company’s promises to consumers of delivering expensive products were “false and misleading, and constitute deceptive acts or practices in violation” of consumer protection provisions of the FTC Act, the FTC’s complaint states.
“We often see that when a new and little-understood opportunity like Bitcoin presents itself, scammers will find ways to capitalize on the public’s excitement and interest,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “We’re pleased the court granted our request to halt this operation, and we look forward to putting the company’s ill-gotten gains back in the hands of consumers.”
The FTC’s complaint focuses on Butterfly Labs’ stonewalling of customers who failed to received mining products for which they had paid thousands of dollars in advance.
Failed to Deliver Products Since June 2012
Butterfly Labs consistently failed to deliver products or services that had been paid for upfront, including cloud mining contracts, over the past two years.
Starting in June 2012, Butterfly Labs touted BitForce, as cutting-edge, powerful and efficient bitcoin mining computer.
Consumers, who were required to pay in full, up front, forked over from $149 to $29,899 based on the computers’ purported computing power.
According to the FTC’s complaint, as of September 2013, more than 20,000 consumers had not received the computers they had purchased.
Despite failing to deliver tens of thousands of BitForce computers, the complaint alleges that Butterfly Labs in August 2013 announced a new, more powerful computer to mine Bitcoins called the Monarch, which was available for sale for $2,499 to $4,680. The FTC said the company had delivered few, if any, Monarch computers as of August 2014.
Computers were Useless
The FTC also notes that because of the unique nature of the Bitcoin system, the outdated computers were useless for their intended purpose, particularly because the price of bitcoin has consistently fallen while the “difficulty” factor in mining the cryptocurreny has continued to escalate.
Bitcoin is currently valued at just under $400 per unit, but it was worth more than $1,000 last November.
While more Bitcoins are being mined each day, the total number of Bitcoins available to mine is reduced in half each year.
The court’s order in the case requires the defendants to immediately stop making misrepresentations about their products and services, and places a freeze on their assets.
The defendants in the case are BF Labs, Inc., doing business as Butterfly Labs; Darla Drake; Nasser Ghoseiri and Sonny Vlesides.