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https://uk.finance.yahoo.com/news/u-court-halts-bitcoin-mining-182124522.html

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By Ros Krasny

WASHINGTON (Reuters) - A U.S. court has temporarily shut down Butterfly Labs, a Missouri company the Federal Trade Commission alleges deceptively marketed computers designed to produce bitcoins, the "virtual currency" payment system.

The FTC's complaint against Butterfly and its corporate officers alleges that the company charged consumers thousands of dollars for its bitcoin computers, called BitForce, but then failed to ship the computers until they were almost obsolete, or in many cases did not provide the computers at all.

In an emailed statement on Tuesday, Butterfly Labs said the commission had overreached with "heavy-handed actions."

“In a rush to judgment, the FTC has acted as judge, jury and executioner, contrary to our intended system of governmental checks and balances," the company said. "It appears the FTC has decided to go to war on bitcoin overall, and is starting with Butterfly Labs."

Unlike traditional currency, bitcoins are not distributed by a central bank or backed by physical assets like gold, but are “mined” by users who use computers to calculate increasingly complex algorithmic formulas.

When a user solves a formula, the bitcoin system awards that user a set number of bitcoins. As time passes and more bitcoins are mined, mining becomes more difficult. The codes become more complex and require more powerful computers to solve them.

“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,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said on Tuesday.

Butterfly sold its computers from $149 to $29,899 based on the machines' purported computing power. The FTC said that more than 20,000 consumers had not received the computers they purchased as of September 2013.

A more powerful computer, the Monarch, was launched in August 2013 for sale between $2,499 and $4,680, but few of the machines had been delivered, the FTC said.

"Butterfly Labs was literally in the midst of shipping out completed products to fulfill the remaining millions of dollars of orders on our books and issuing requested refunds," the company said.

The defendants in the case are BF Labs, Inc, doing business as Butterfly Labs, and company officers Darla Drake, Nasser Ghoseiri and Sonny Vlesides, the FTC said.

The court's preliminary ban on Butterfly Labs will be considered at a hearing scheduled for Monday.

The case is 4:14-cv-00815-BCW in U.S. District Court for the Western District of Missouri.


(Reporting by Ros Krasny; Editing by Peter Cooney)

https://uk.finance.yahoo.com/news/u-court-halts-bitcoin-mining-182124522.html

already a thread  (https://bitcointalk.org/index.php?topic=794068.0)

but thanks for the details

I'd love a report from the hearing.

Also, from BFL's statements, it sounds like they are TRYING to get all of the Bitcoin community to line up behind them and help them out, claiming it's an attack on Bitcoin.  But it's not, it's just an attack on a scam company.

Meh.

They get their doors padlocked, accounts frozen, fined, ordered to make restitution. They will declare bankruptcy, the coins are already hidden, there's nothing to take! The bfl team does a few months of white collar time at club fed. Disappear to Belize with millions in btc intact. Pretty good for a few months cushy jail time.

God bless America!

I totally agree, BFL is Attacking the bitcoin community ...

the BFL crew will be going to jail in two weeks.
https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcSzfkUAiDosHWOmaVxnEJdbMbXzOKgl0izGsuIfWVWK_NW38Vx4

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcTjR5ll6iu2h_YKAvx_zNukvcSGMYIMoyFS9N_28Sxm6hEKJ57a

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcR6c4m1T_JGQueasCXRCddFsX3j0uDjJwWm3OkV5NjlDMtlkr-Z

https://encrypted-tbn1.gstatic.com/images?q=tbn:ANd9GcQjjb4aTaPqMA1snj8Sj025bfajFAWRyjMb4GNSscWL9l1mBBtK

https://encrypted-tbn2.gstatic.com/images?q=tbn:ANd9GcQ9YgRXRTXynvnZvS5262tZNX1sPm8N3sdJdcxfZeQKfWtx-nIktQ

Do you have a link to josh statement? I need to hear what that weasel comes up with. Usually beyond belief (quite literally)

EDIT- please stop saying that they will go to jail in two weeks. The logic of the joke is that two weeks equals much longer, possibly forever, so it should be "bfl josh is going to jail FOR two weeks"

Thank you

+1
I was looking for it cant find it :(

butterfly labs statement that it is a rush to judgement is crap..

if i remember rightly the FTC or another government department gave BFL a warning a couple months ago, to clear up their act. and i guess BFL's time is now up.
they had their chance to do the right thing, so i do not pitty BFL one bit.

refunds could all be done in a single day. products (if they exist) could be shipped within a month. but this goes to show that if a company offer a product that exceeds one month shipment.. DONT CALL IT A PRE-ORDER! DON'T TAKE PEOPLES MONEY.

id advise everyone who still has an order with BFL to send an email requesting refunds. where the dollar price tag of product is repaid in bitcoin at todays LOW price.

EG
if you pre ordered $10k of equipment in december (=9btc). now request a $10k refund in bitcoin at todays rate (=26btc)

+1 Please do so!:)

Will this have an effect on the BTC price?

Yes, this is good news.

Looks like the article has been updated with a little more info:

UPDATE 11:17am CT: Helen Wong, an FTC attorney, told Ars that all three principals had been served with the lawsuit and that no arrests were made. The USMS, she said, was present to "keep the peace."
Initially, she explained, the case was sealed to prevent BFL from moving money around (or, in government parlance, to prevent "asset dissipation").
BFL is no longer in the hands of its principals but rather under a temporary court-appointed "receiver," a situation which will last until Monday, September 29. On that date, the judge can choose to extend the receivership or cancel it.
"The court granted the FTC's request to put the company under a temporary receivership," Wong said. "Basically everything is under the control of the receivership. The order allows us to locate documents and assets. The receiver has temporary custody of the company; everything is under his ownership until or unless the court decides otherwise."
Wong also noted that in this action—the FTC's first involving Bitcoin—seeks "full consumer redress," which, if successful, would result in refunds payable in US dollars.

http://www.ftc.gov/news-events/press-releases/2014/09/ftcs-request-court-halts-bogus-bitcoin-mining-operation

It was only a matter of time.  I wonder if any other vendors will have similar problems?

I would be curious if this had anything to do with the recent selloff of the price of bitcoin recently. I would speculate that BFL had a good stash of bitcoin from mining with customer machines (prior to shipping the machines) and they could have sold them in reaction to this lawsuit. Unlike their bank assets the FTC could not effectively take control of the bitcoin that was held by BFL

on BFL website they have an email and phone number to an attorney ??? Can some one please check it out and let us know why???
http://butterflylabs.com/
eljreceiver@spencerfane.com
spencerfane.com
816-292-8316

???

These are the idiots representing BFL and Josh... Ha! Josh is about to get scammed by real professionals scammers HAHAHAH!

http://www.spencerfane.com/files/ImageControl/85c4abf2-2e3c-49be-b30c-0c488e875296/7483b893-e478-44a4-8fed-f49aa917d8cf/Presentation/Image/NewPartners2014.jpg

http://www.spencerfane.com/

Yeah it has always been speculation that BFL was mining with customers money ("the monarchs work just not reliable right now").... I'm sure it was easy for them to move btc around well b4 investigations began... somebody's brother in law is sitting on a large pile right now.

I only have 1 word to say.

Op's name is LittleD, LMFAO, he has a little d!!

Very insightful comment.  What the heck does that have to do with BFL?

So... you are defending BFL why?

Defending them, of course not. I think they deserve to go to prison for the max. sentence.

I made that comment because, well, my name is "Come-In-Behind", and I felt a little immature, childish, humor, would live up to such a username (Look at Come-From-Above's name and posts for reference).

Also, I'm bored as hell.

I hope the result of all this is the establishment of some laws that will

• Prevent hardware manufactures from also operating as miners, to prevent them from mining with consumer funds/equipment.
• Places controls on prices so that manufactures are not over charging for hardware.

The first point is very important.  It's a conflict of interest.  They sell 'used' hardware to customers who believe they are getting 'new, unused' items.  It also causes difficulty to rise sooner, thus requiring the customers to buy 'newer', 'faster' hardware more often.

I strongly agree with your first point. I think that any bitcoin mined by hardware that is used for "testing" should be used to first pay for electricity the equipment uses, and then be distributed to the pre-order customers (after the "pre-order" phase is over there is no reason for any kind of delays in shipping) in proportion to how many machines were ordered (a customer who ordered 10 machines should get 10x the amount that someone who ordered 1 machine - assuming there is only one "model" being sold).

On your 2nd bullet, I strongly disagree we need laws for this. If a miner is being sold for too much money it will not be purchased by anyone.

Just an fyi, THERE IS NO REASON WHAT SO EVER FOR A COMPANY TO MINE REAL BTC! Not when there exists test net btc. I know the hardware needs testing, hence the testnet btc.. mines fake btc just as hard as the real.. sorta. :)

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Yes, because regulation by fiat is EXACTLY what BTC is about. Wait....

This would increase expenses for them because mining on the test net would still require electricity but would generate no revenue. The test net is also not the best place to be testing new miners as the difficulty resets if a block is not found within (I believe it is) 30 minutes, which would likely have adverse affects on testing.

Well i didn't know the diff reset, i knew it would probably be lower for the fewer miners mining on it, but that being said the electricity should be covered by the company as part of R&D and not been taken from the miners, kinda like ordering a pizza and the driver shows up to hand you 3/4 pizza 1/4 was ate while delivering it to you :)

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Noble goals. Absolutely despicable means of achieving them. The government has no legitimate business here.

Nobody who does not give a mining equipment manufacturer funds cannot be hurt by that company mining with their manufactured product before shipment.

The proper solution would be for people to be adults, and do some due diligence on a manufacturer before trusting them with funds.

Double take... WHAT???

You obviously have no clue about bitcoin miner manufacturers.. LOL

Or your a shill for BFL.

Yes, I have a clue or three about miner manufacturers. And I am not a shill for BFL. (Would someone that is a shill for BFL have no clue about miner manufacturers? How would that work?)

You are advocating that the state step in and mandate behaviors in an area where consumers have the capability of making perfectly usable decision on their own. You are advocating the statist solution.

Price controls? Really? Do you fondly long for the simple wistful days you spent under the diktat of the USSR?

Very large companies have a huge advantage over people who are buying miners on a "retail" level. The customers do not have any power against the manufacturers when they decide to delay shipment even when they promised an earlier shipping date.

The network as a whole suffers when a manufacturer mines with customer equipment as the difficulty is higher as a result (the manufacturer is able to produce more miners with zero risk to themselves). This also reduces overall confidence in bitcoin

Yes, the customers have the power to be non-customers of businesses that engage in crappy business practices. Whining to mommy government almost always makes problems worse, not better.


The _network_ is not harmed in the slightest. Greater difficulty is good for the network - it reflects additional hashing power that a new entrant would need to acquire in order to 51% the network. This is reflected in additional confidence, not less.

Sure, it's bad for individual miners. Too bad. I guess those miners should have done their due diligence before throwing their money at empty promises.

It's not as if anyone ordering within the last two years or so did not have ample evidence that BFL was not going to meet their target ship dates.

Let's keep our eye on the ball here. My comments are solely directed against the idea that government should:
- make new laws preventing manufacturers from mining
- make new laws for price controls

How the hell would that even work in a global industry? Ludicrous!

Dude.. first of all, spencerfane acts as the receiver for the court, not as BFL's attorneys. Secondly that picture is not of the people actually involved, but turns out to be of 3 new spencerfane partners. That lawfirm has over 100 lawyers.

Interesting article at Arstechnica:
http://arstechnica.com/tech-policy/2014/09/feds-butterfly-labs-mined-bitcoins-on-customers-boxes-before-shipping/