Bitcoin Hardware Company Butterfly Labs Settles With the FTC for Being Crooked

Butterfly Labs gives up the ghost.

Formerly all the rage amongst everyone from anarcho-technologists to billionaire investors, Bitcoin is back in the news today as a company called Butterfly Labs settles a $38.6 million lawsuit with the Federal Trade Commission.

This whole ordeal began in September 2014. Butterfly Labs formerly sold specialized computers that were purportedly adept at solving the complex math problems used to generate the virtual currency known as Bitcoin. They were effectively marketing and selling a kind of high-tech money-printing device.

Customers paid top-dollar for these niche machines, but orders were either never fulfilled, or they were fulfilled so late that the technology powering them had become obsolete. Millions of dollars were tied up in this business.

The Feds cried foul ball and swept into action. In 2014, there were unsubstantiated rumors on the BitcoinTalk forum, a popular hangout for enthusiasts of the cryptocurrency, that the United States Marshal Service had broken into and raided Butterfly Labs’ headquarters in Leawood, Kansas.

A USMS spokesperson confirmed to Ars Technica that one of her colleagues “was present at [that] location on [that] day,” so make of that what you will.

What is known without any doubt, however, is that the FTC alleges that Butterfly Labs management used customer-ordered Bitcoin mining machines to mine their own Bitcoins, and that the money they generated went elsewhere while customers’ machines sat unshipped.

Importantly, Butterfly Labs denies any involvement with mining on its own website: “The answer is pretty simple. Hardware is the focus of our passion. We’re hardware designers.”

Comically enough, the company acknowledges the “1,566 orders remaining in the refund queue.” A recent update from the company informs that it can’t afford to issue any customer refunds right now.

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