Feds force court to shutter bitcoin scammer

At the request of federal regulators, a federal court has shut down a Missouri-based company that allegedly scammed people looking to cash in on bitcoins.

The Federal Trade Commission had accused Butterfly Labs of charging people thousands of dollars for its computers, which it claimed “mined” bitcoins by completing a complex algorithm.

{mosads}According to the FTC, though, the computers weren’t shipped to people who bought them until they were practically useless — if at all. As of September 2013, more than 20,000 people had not received the computers they had purchased.

“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,” the director of the FTC’s Consumer Protection Bureau, Jessica Rich, said in a statement. “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.”

Bitcoins only exist digitally but can be exchanged for cash or used to buy goods and services at some shops. Instead of trading money for bitcoins, the other way to obtain them is to use powerful computers to “mine” them by solving a complex puzzle.

Butterfly Labs marketed its computers as bitcoin mining machines called BitForce and sold them for as much as $29,899 each.

Thousands who paid never got them, the FTC alleged. The few people who did receive their computers said that they were essentially obsolete by the time they got them.

In addition, the FTC claimed that Butterfly Labs allowed people to pay for time using its machines to mine bitcoins. As of this August, however, the company had not actually performed that service for anyone, even though some had paid thousands of dollars, the FTC alleged.

In a statement, the company refuted the allegations and accused the FTC of targeting bitcoin as a whole.

“It appears the FTC has decided to go to war on bitcoin overall, and is starting with Butterfly Labs,” the company said, while adding it is “very real,” contrary to media depictions of it as “a bogus and fake company.”

“Butterfly Labs was literally is in the midst of shipping out completed products to fulfill the remaining millions of dollars of orders on our books and issuing requested refunds, when the FTC effectively closed the doors of Butterfly Labs without any chance to be heard in court,” it added.

The company has pledged to fight the FTC charges in court.

The court order temporarily freezes Butterfly Labs’ assets and requires them to stop misrepresenting their business.

— Updated to add comment from Butterfly Labs at 10:49 p.m.