'Bitcoin Mining' Equipment Firm Took Money & Ran, Investor Says
SAN JOSE (CN) - A company that sells "Bitcoin mining" equipment folded without delivering the equipment to its customers or refunding hundreds of thousands of dollars in Bitcoin advance payments, a purchaser claims in court.
Howard Loo sued TerraHash Inc., Amir Khan and Tarandeep Gill, in Santa Clara County Court, alleging fraud, unjust enrichment and breach of contract. He claims the company took in more than $600,000 in a single week this summer - $97,000 of it from him, in Bitcoins - then never delivered the goods.
Bitcoins are a virtual currency, which Loo describes as a digital form of gold, which can be transferred between people or merchants. Several businesses worldwide allow customers to pay for goods or services using Bitcoins. A single Bitcoin was selling for more than $1,000 this week.
Bitcoins can be bought or sold through websites that exchange Bitcoins for traditional currencies. "(T)here is even a Bitcoin ATM in Vancouver, Canada, that will allow persons to buy and sell Bitcoins for cash," Loo says in the complaint.
More than 12 million Bitcoins in circulation, and new Bitcoins are constantly being added, though there number will be capped at 21 million, according to the lawsuit.
Bitcoin transactions are protected by cryptography. Specially programmed computers keep track of transfers and prevent people from copying and spending the same Bitcoin more than once time, which is known as double-spending. Operators of such computers are known as "miners" and are rewarded with transaction fees and newly minted Bitcoins, according to the lawsuit.
TerraHash is a computer hardware company that claims to produce and sell application-specific integrated circuit (ASIC) Bitcoin mining equipment using Avalon ASIC chips to sell to miners, Loo says.
The company made several announcements on its website about mining equipment for sale. TerraHash took pre-orders for the equipment and said it would accept Bitcoins for payment, Loo says in the complaint. It offered a 5 percent discount for purchases with Bitcoins, which induced Loo to prepay TerraHash for the equipment, he says in the complaint.
"On June 18, 19, and 20, 2013, defendants accepted online orders and prepayment from approximately 130 customers interested in the purchase of ASIC Bitcoin mining equipment," Loo says in the lawsuit. "TerraHash knew the material importance of delivery of the ASIC Bitcoin mining equipment quickly.
"TerraHash received approximately $614,000 in prepayments from orders for ASIC Bitcoin mining equipment during this three day period."
Loo says he ordered a Bitcoin mining device on June 18, for which he paid TerraHash 91.2542309 Bitcoins - now worth $97,050.
Loo says that he was told he would receive the equipment by Aug. 15.
But TerraHash did not have the ability to produce functional Bitcoin mining equipment, Loo says.
"Indeed, on information and belief, TerraHash was a sham conceived by Amir Khan as a way of defrauding and converting large amounts of money and other valuable assets, including but not limited to Bitcoins, from potential customers of ASIC Bitcoin mining equipment, exploiting the high demand for that equipment," according to the complaint.
The Aug. 15 delivery date came and went with no deliveries, Loo says. On Sept. 25, TerraHash announced on Bitcointalk.org "that 'a lot of customers' had asked for refunds; that TerraHash's bank had shut down its accounts; that it was 'impossible to continue our operation profitably,' and that defendants had therefore 'decided to dissolve the company,'" Loo says in the complaint.
He claims he never received the equipment he paid for, nor a refund of the Bitcoins.
"TerraHash and Khan, by inducing prepayments in the form of Bitcoins, sought to profit further by retaining the Bitcoins, thereby enjoying the anticipated surge in the market value of the Bitcoins," Loo claims.
He wants his Bitcoins refunded and punitive damages for fraud, conversion, negligent misrepresentation, unjust enrichment, breach of contract and breach of faith.
He is represented by Christopher D. Banys.