FTC Goes After Bitcoin Mining Company

KANSAS CITY, Mo. (CN) - The Federal Trade Commission claims in court Bitcoin mining machine vendor Butterfly Labs failed to deliver real goods.

The FTC sued BF Labs dba Butterfly Labs and Butterfly officers Darla Drakel, Nasser Ghoseiri and Sonny Vleisides in Federal Court.

The FTC claims the defendants offer to sell Bitcoin mining machines for prices ranging from $149 to $29,889, but fail to deliver the machines or deliver defective ones.

"In numerous instances, consumers were not able to generate Bitcoins using the BitForce or Monarch Bitcoin mining machines because defendants did not fulfill consumers' orders," the complaint states.

"In numerous instances, defendants eventually delivered a BitForce that was either defective, obsolete, or mining far less Bitcoins than it would have had it shipped on the promised shipment dates.

"In approximately December 2013, defendants began offering mining services, at an average upfront cost of approximately $10/GH [gigahash] for 12 months, whereby Butterfly Labs supposedly would use the Monarch mining machines to generate Bitcoins for the consumer. A gigahash is a measure of computation power in Bitcoin mining. A mining service company estimates that in order to generate a significant amount of Bitcoins, a consumer would need to purchase 1000 GH per year. Defendants stated that the service would allow consumers to 'harness the power of the latest Bitcoin mining technology' without any 'technical knowledge.' Butterfly Labs stated that they would begin generating Bitcoins for consumers who paid for these services in the 'March 2014 time frame.' Defendants failed to do so. In fact, as of August 2014, Defendants had not generated any Bitcoins for consumers who had purchased the mining services, often at a cost of thousands of dollars per consumer."

Bitcoins can be digitally traded between consumers or exchanged for actual or other virtual currencies. Bitcoins can be generated through a process called Bitcoin mining. Once a miner solves a computational puzzle, a number of Bitcoins are assigned to the miner, who uses mining machines such as the ones offered by the defendant on their personal computers.

The FTC seeks an injunction, disgorgement, restitution, and damages for deceptive trade and violations of the FTC Act.

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