Dodgy Bitcoin mining equipment outfit Butterfly Labs settles with FTC, gets a slap on the wrist

Dodgy Bitcoin mining equipment outfit Butterfly Labs settles with FTC, gets a slap on the wrist

Dodgy Bitcoin mining machine operation Butterfly Labs, Inc. has settled with the Federal Trade Commission over charges that they scammed thousands of users.

The FTC took the company to court back in September 2014 over claims that the ASIC Bitcoin mining gear they were selling was either second hand, not as promised, delivered late or in some cases never delivered at all.

Under the terms of the new agreement, Butterfly Labs is due to pay the FTC more than $38.6 million, however the sum will be suspended once the company pays $15,000 and co-founder Sonny Vleisides pays $4,000, ostensibly due their inability to pay the full amount due.

Darla Drake, the company’s General Manager, was fined $135,878  but likewise that payment will “be suspended once she surrenders the cash value of all Bitcoins she obtained using company machines,” according to the FTC.

In addition to the fine, Butterfly Labs, Vleisides, and Drake will be prohibited from misrepresenting to consumers whether a product or service can be used to generate Bitcoins or any other virtual currency, on what date a consumer will receive the product or service, and whether the product is new or used; the company and Vleisides will also be prohibited from taking up-front payments for Bitcoin machines and other products used to mine for any virtual currency unless those products are available and will be delivered within 30 days.

“Even in the fast-moving world of virtual currencies like Bitcoin, companies can’t deceive people about their products,” FTC’s Bureau of Consumer Protection Director Jessica Rich said in a statement. “These settlements will prevent the defendants from misleading consumers.”

Strange

The ruling by the FTC is a strange one to say the least: instead of banning Vleisides and Drake from the industry altogether, they’ve instead placed restrictions of how they operate; if the pair were in the financial industry there wouldn’t be any question of them being banned.

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Why didn’t the FTC simply ban them from operating a Bitcoin mining equipment business? It’s the logical response to their actions, and it should be noted that not only didVleisides and Drake deny the charges, they actually went as far as mocking the customers they ripped off in a story you can’t make up:

Butterfly Labs’ unpopularity was demonstrated in court when the FTC’s attorney showed judges a foam torch, an item that resembles a foam finger used at sporting events, with the words “BFL is late!” and “Y U NO SHIP!” emblazoned on it. The foam torch was said to have been taken from Butterfly Labs’ headquarters – it’s alleged the company used corporate funding to have them made for the sole purpose of mocking their jaded customers.

These scumbags need more than a slap on the wrist, and in effect between the suspended payments and lack of a ban, that is exactly what they got from the settlement.

Image credit: 92622665@N08/Flickr/CC by 2.0
Duncan Riley

Duncan Riley

Duncan Riley is a senior writer at SiliconANGLE covering Startups, Bitcoin, and the Internet of Things.

Duncan is a co-founder of VC funded media company B5Media and founder of news site The Inquisitr, and was a senior writer at TechCrunch in its earlier days.

Tips? Press releases? Intersting startup? email: duncan@nichenet.com.au or contact Duncan on Twitter @duncanriley
Duncan Riley

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