FTC Shuts Down Butterfly Labs, the 2nd-Most Hated Company in Bitcoin World

Butterfly Labs was shut down by The US Federal Trade Commission that filed a suit, alleging the company did not fullfill customer orders that had been paid upfront.

More than 20,000 customers had received nothing by September 2013 - more than a year after customers' placed their first orders - despite paying upfront for products that ranged from $149 chips to $29,899 machines. Photo: Federal Trade Comission by sha in LA/Flickr

More than 20,000 customers had received nothing by September 2013 - more than a year after customers' placed their first orders - despite paying upfront for products that ranged from $149 chips to $29,899 machines. Photo: Federal Trade Comission by sha in LA/Flickr

The US Federal Trade Commission (FTC) has closed Kansas-based bitcoin mining company Butterfly Labs on September 18th after it was accused of public misrepresentation and fraud.

According to FTC, the US District Court for the Western District of Missouri allowed the agency to freeze the firm’s assets and close its pending trial.

Over the past few months, FTC received a lot of complaints from customers that accused Butterfly Labs of refund payments and delaying shipments.

Director of the FTC Bureau of Consumer Protection, Jessica Rich, told that they are working on compensating customers’ losses. She said: “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. 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 filing states that over the last two years Butterfly Labs delayed or failed to supply services and products, ranging from $149 chips to $29,899 machines, that that had been already paid for. Over 20,000 customers had received nothing by September 2013. Previously, the company said delays were because of manufacturing difficulties.

In addition, three company members – Nasser Ghoseiri, Sonny Vleisides and Jody Drake – were accused of spending millions of dollars of Butterfly Labs’s revenues on their own needs.

“The FTC alleges that one corporate defendant and three individual defendants have taken in over $50 million by operating a scheme that required consumers to pre-pay for machines that would allow consumers to ‘mine’ for Bitcoins, a new virtual currency,” the complaint reads. “Defendants either never delivered these machines or delivered them so late that they became obsolete.”

Butterfly Labs violated Section 5(a) of the FTC Act, alleging that the company is engaged in “unfair or deceptive business practices in or affecting commerce”.

The FTC wrote in its filing that these actions pose a threat to consumer safety and justifies the company shut down.The FTC said: “Consumers have suffered and will continue to suffer substantial injury as a result of Defendant’s violations of the FTC Act. In addition, Defendants have been unjustly enriched as a result of their unlawful acts or practices. Absent injunctive relief by this Court, Defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest.”

Nobody from Butterfly Labs answered to the requests for providing any comments by e-mail, phone and Skype.

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