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#Public Sector

Butterfly Labs shut down by the FTC

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Butterfly Labs, the company that failed to deliver Bitcoin mining machines as promised, has been shuttered by the Federal Trade Commission (FTC) after getting a temporary restraining order from a federal court.

The FTC alleged that Butterfly Labs put up Bitcoin mining systems dubbed BitForce up for sale in June 2012 charging up to $30,000 for each piece while promising delivery dates of October 2012. As many has 20,000 customers ordered the device; however, the company failed to deliver the product and the few customers who received it found that it was not helpful for the intended purpose.

The company then put up Monarch, another machine, for sale with delivery dates of April 2014, but the FTC claims in its report that no customer has received it either. The company required customers to pay upfront and accepted only payments by Bitcoins or through PayPal or bank wire transfer.

The company is said to have made between $20 million and $50 million illicitly from this scam. Butterfly Labs is based in Missouri and one of its founders Sonny Vleisides was found guilty in a lottery scam the same year it was founded. Other owners were said to have been using the company’s credit cards to shop at Nordstorms and other spas.

Butterfly Labs has responded saying that it has delivered products worth more than $33 million and paid back $17 million to customers who cancelled their orders. The company also said that it will defend itself in court and that the FTC has acted as “judge, jury and executioner” in this case.

PayPal said that it has stopped companies from receiving Bitcoins for non-digital items through its online payment service in order to defend the interest of buyers. It also said that Butterfly Labs’ PayPal account has been frozen and there was $11 million in the account at the time when the scam was discovered. Almost 6,000 buyers who paid through PayPal have filed complaints against Butterfly Labs.

[Source: FTC]