Re: Butterfly Labs CEO 25 Million USD Mail Fraud — A Concise Summary of Evidence

[Desolator]

With the common level of idiocy around this forum, I can't understand how Inaba is continuing to remain so polite to you morons. (I'm pretty sure the moroncy starts at the top around here, not much to be done about it, I'm afraid)

I am starting to wonder why any bitcoin related company would provide a presence on this trollpit - it's gotta be worse for business to announce on this forum, than to simply ignore bitcointalk.
 
Inaba, as stated above, you can't reason someone out of a position they've not reasoned themselves into.

Are you new here or just stupid?  First of all, Inaba is an ass with a bad attitude regardless of anything else.  Second, every other business announced on this forum is a scam.  So when the biggest bitcoin hardware operation ever gets announced and someone finds out the owner was convicted of large scale fraud, wooooooo, it's my birthday.  Shockingly it appears to have been a false alarm but if you think we're all being "mean" or whatever by investigating it and insulting them for hiding it and being so secretive about everything, you have no idea how the bitcoin community works.

[1715124639]

1715124639

[1715124639]

1715124639

[Rassah]

History is full of people who have had some moral faults but then turned their life around.

Yeah, right. People always see the light. Having Sonny Vleisides watching over ten million dollars is like hiring Charles Manson as a baby sitter when he gets released from prison. Good luck with that. 

That is unfounded speculation, nothing more. We were told the money is held by the company, not Sonny himself.

I guess the next question would be, if the money IS held in a company bank account, does it require two signatures on the check to be spent, or is it still entirely under Sonny's control? (Until Innaba answers this, any claims will continue to be speculation).

[elux]

First, let me start off by saying I apologize for the length of this post.  I wanted to get all the information out there at once.  Normally, I would not make a post of this nature, but given the current circumstances, I think it is warranted.

Many of you on bitcointalk.org forums know me as “Inaba,” the operator of the Eclipse Mining Consortium bitcoin pool.  In approximately two weeks I will also be wearing a different hat.  As you may be able to guess from my new forum name, I will be working with and for BFL.  Effective August 13, 2012 I have accepted the position of Chief Operating Officer of BF Labs INC. (Butterfly Labs)

BFL is the clear technical leader in the FPGA and upcoming ASIC mining space.  As a direct result, the company has grown very quickly over the past year.  Unfortunately, its customer service, which was initially very good, did not scale fast enough, which caused customer relations and transparency to suffer. BFL is eager to improve and one of my top responsibilities in this new position is to focus on that specific issue.  I am, have always been and will always be committed to good customer service and transparency when it comes to bitcoin in general and the daily operations of related activities.  This is where I will be focusing much of my initial attention, specifically to take the pressure off of everyone involved so that they can focus on the other important factors, such as getting the hardware delivered on time!

While I may not be universally liked by everyone in this community, I believe I at least have the respect of many people. I have always stood behind my integrity and commitment to what I promise and I take ownership of my mistakes.  This will not change going forward and I will give my best level of effort to deliver on the promises I make to this community as a representative of BFL, as I always have.  If for some reason I am unable to deliver on those promises, I will provide an explanation as to why.

While there may come a day when bitcoin does not need the Bitcointalk community, that day is still far in the future.  As I have cultivated a relationship with this community through EMC, I also plan on cultivating a rewarding relationship with the community through BFL.  There is some history and baggage to overcome, but I do not believe it is insurmountable.  I also will not be part of or lend my credibility to an organization I do not believe in or one that I believe is working to undermine bitcoin at the expense of the community just to make a quick buck.

To forestall some of the most likely questions, I’m going to answer them here:

Q. Have you been working for BFL all along?
A. No. I have had no business relations with BFL beyond being a customer and also providing some technical assistance getting their equipment to properly talk to pools.

Q. Seriously.  You’ve been working with BFL from the start, you can admit it, haven’t you?
A. Seriously, no!  I first discovered BFL at the same time as everyone else, back around November of 2011.  It was purely coincidental that I happened to work, literally, across the street from their registered address of operations.  I was just as skeptical as everyone else, especially when I discovered the registered address appeared to be a Lebanese restaurant that I frequent (but never really paid attention to the address).  I learned more about BFL along with everyone else and since I was local and close by, I reached out on behalf of the Bitcointalk community to BFL, specifically Sonny, to see if I could gather more information.  I had been running the EMC pool since May/June of 2011 and had no knowledge of, or association with BFL or any of the parties involved in BFL up until it was first noticed on these forums.

Q. Are you going to stop being such a jerk on the forums to some people?
A. Maybe.  It depends. Actually, yes.  As a pool operator and an independent individual I have far more latitude and freedom to express my displeasure with some of the more intense stupidity that can be encountered on the internet.  As a representative of a company, I am, unfortunately, a bit more constrained from explaining to various people exactly why they are idiots.  As such, I will likely be ignoring a lot of the more of the ludicrous posts than I have before. To those of you who enjoyed reading my rants, I am sorry that they will be far fewer and betweener.

Q. What are your qualifications in the endeavor?  What do you bring to the table?
A. I’m glad you asked.  From a customer service perspective, and more specifically, from an online community perspective, I have extensive experience on both sides of the fence.  I have run online forums since the Fidonet days, and have extensive experience in the often caustic, emotionally driven environment that an online forum can produce.  This allows me to effectively communicate with the population, since I am one of the populous myself.  Unlike many customer facing people in many industries, I also have a strong technical background; I am able to communicate effectively with you about your problems, wishes and desires from a technical perspective.  I will not make empty promises from a marketing standpoint if I know it’s technically unreasonable or impossible.  I am also able to effectively manage a project from end to end, which will be critical in getting our manufacturing and production lines going in the most efficient manner possible.  I have also run a number of startups, and I understand the unique challenges required of a startup to function properly and successfully.

Q. Come on, for real, you’ve been with BFL all along, right?
A.  No!  Really!  I have been working for an unrelated company that has nothing to do with bitcoin long before BFL was founded or I knew of any of the people involved, and I am still working for that company, until the day I start working for BFL.

Q. What will happen to EMC?
A. Right now, there are no plans to change anything with regards to EMC, other than more improvements as usual.  I will continue to operate EMC as I have since the start.

Q. You are going to have an unfair advantage when it comes to mining equipment, you’ll be able to get as much as you want before anyone else!
 A. I will not be expanding my mining footprint as it would be a conflict of interest.  I will continue with my current obligations and already acquired/paid for equipment but will not be purchasing or utilizing additional equipment as part of my mining operations.  This is one of the hardest changes I will be making, as I firmly believe there are plenty of opportunities in this space that I am going to be missing out on, but I believe I can do more good for the bitcoin community as a whole working to provide that equipment to people as opposed to using it myself.

Q. Why now?  Why not before?
A. The topic never really came up.  BFL as a corporate entity is a startup and has been running very lean and mean.  With wild success and absolutely spectacular outlook for products, it’s time to move to the next stage of business.  With my diverse skill set, I can replace both a technical lead and a PR/community lead, thereby eliminating the need for an additional person, which means we can move that much quicker in the market as well as have that much less overhead that can go towards development instead of human resources.

Q. Are you going to become just another mouthpiece for the BFL party line?
A. First of all, there is no “party line” coming out of BFL.  They have been up front and honest with their dealings in the community from day one.  There are a number of people on the forums that feel that BFL has been dishonest and some of those feelings are justified if viewed through the lens of “Every business should be perfect, always.”  However, both Sonny and the engineers, contrary to some statements you may have seen from others on the forum, have been honest in their assessments of capabilities and timelines.  They have been mistaken, yes, but they have not been willfully or intentionally dishonest.  Some can say they should have known better, and whether or not that is true is, at this point, academic.  I am looking at the future, not the past, and I will be doing my level best to provide accurate information from day one.  If there is some information that I believe to be inaccurate, a lie, or just plain wrong, I will not pass it off as fact.  I will not tow any “party line.”  I will give you the honest facts as I know them.  There may be times that there are trade secrets that I cannot reveal, but I do not believe this constitutes falsehood or anything nefarious, as there are times where revealing certain bits of information would put BFL at a competitive disadvantage.  That will harm not only BFL, but also its current and future customers.  If there are still people that, going forward, feel that this is somehow dishonest, then I apologize in advance and I also give advance notice that there will, in fact, be times where 100% of information cannot be disclosed, either immediately or possibly ever.

Q. Help me!  Order Status?  Why is the sky blue?
A. I will not be able to answer your questions with regards to order status, etc… via PMs.  The PM system does not allow me to track or correlate information to provide accurate answers.  I will, however, be able to do that via email and our new support system that I will be facilitating in the near future.  PMs requesting information that should be directed to the support system will be ignored.  I apologize for this, but it’s just not feasible to handle the volume of requests that it would generate.

Q. Are there cookies?
A. Yes, there will be cookies.  The cake, however, is still a lie.

Quoted in its entirety, for future reference.

[crazy_rabbit]

History is full of people who have had some moral faults but then turned their life around.

Yeah, right. People always see the light. Having Sonny Vleisides watching over ten million dollars is like hiring Charles Manson as a baby sitter when he gets released from prison. Good luck with that. 

That is unfounded speculation, nothing more. We were told the money is held by the company, not Sonny himself.

I guess the next question would be, if the money IS held in a company bank account, does it require two signatures on the check to be spent, or is it still entirely under Sonny's control? (Until Innaba answers this, any claims will continue to be speculation).

I don't think any company would reveal to anyone other than their accountants how their financial control system works. So this will continue to be speculation forever I imagine.

[guruvan]

With the common level of idiocy around this forum, I can't understand how Inaba is continuing to remain so polite to you morons. (I'm pretty sure the moroncy starts at the top around here, not much to be done about it, I'm afraid)

I am starting to wonder why any bitcoin related company would provide a presence on this trollpit - it's gotta be worse for business to announce on this forum, than to simply ignore bitcointalk.
 
Inaba, as stated above, you can't reason someone out of a position they've not reasoned themselves into.

Are you new here or just stupid?  First of all, Inaba is an ass with a bad attitude regardless of anything else.  Second, every other business announced on this forum is a scam.  So when the biggest bitcoin hardware operation ever gets announced and someone finds out the owner was convicted of large scale fraud, wooooooo, it's my birthday.  Shockingly it appears to have been a false alarm but if you think we're all being "mean" or whatever by investigating it and insulting them for hiding it and being so secretive about everything, you have no idea how the bitcoin community works.

Lol. Neither new (but not as long as you, admittedly) not stupid - I've dealt with Inaba on more than one occasion, and found him to be quite professional when approached in a like manner. I have a pretty good idea how the bitcoin community works. Call everything a scam and FUD, and eventually you're right - meanwhile you get to idiotically troll the place with uninformation and misinformation and disinformation. With all that coming at you if you run any kind of business in bitcoin, why the fuck wouldn't you have a bad attitude. I think my attitude gets worse the more I read the forum, so if Inaba is a "jerk" because of dealing with this likes of what I see in this thread, well.....I find that no surprise. I haven't found him to be an asshole without serious provocation, but If I was in his position, I wouldn't give one shit what people thought about me here - the vocal minority of bitcoiners do not make the market - they make shitstorms.. Part of the PR reality - it doesn't matter if they love you, or hate you - as long as they're paying attention.

I'm quite sure that Sonny's prior conviction has plenty of people worried. If i had been one of those who'd ponied up for some ASIC gear, it'd have me worried. A little. But not that much. BFL delivered before, I have no reason to expect them to not deliver again. Fear is no reason to let one's reason and thinking ability fly out the door - but here on this forum that is the norm.

[Meatball]

God damn people.  Bitcoin at it's core has a huge amount of risk built into it.  We're basically talking about a currency that has no real world material backing it, and basically has nothing demanding it to be used to purchase anything.  If you are freaking out that you think BFL is a scam, then fine, don't pre-order from them.  Will it suck if that's the case, of course, but welcome to the world of BTC.

You can just as easily invent thousands of dollars on a Fortune 500 company and lose most of it.  It's great that people are doing some due diligence and asking hard questions, but if you can't afford to lose any of the money you invest into BTC, you shouldn't be investing in BTC...

[Come-from-Beyond]

I am starting to wonder why any bitcoin related company would provide a presence on this trollpit - it's gotta be worse for business to announce on this forum, than to simply ignore bitcointalk.

I'm pretty sure u r right. I was thinking about announcing here the launch of the coin I'm working on. But now I think I shouldn't do it.

[elux]

Just lining up more pieces:

http://www.scribd.com/doc/106409576/Indictment-USA-v-Vleisides-Houston-Emmett-Cloud-Walther

This one is interesting:

RESTITUTION:Pursuant to 18 U.S.C. § 3663A(c)(3), restitution is not ordered because (1) the number of identifiable victims is so large as to make restitution impracticable [3663A(c)(3)(A)]; and (2) determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process [3663A(c)(3)(B)].

http://www.scribd.com/doc/106409553/Judgment-probation-order

Also:

Through companies located in Costa Rica, The Netherlands and other places, the defendants allegedly mailed more than 1 million solicitations that fraudulently offered people an increased chance of winning foreign and domestic lotteries such as “The Australian Lottery,” “The International Irish Sweepstakes,” and “The NY Super 7.” The solicitations claimed that people could purchase “positions” in lotteries that would be grouped together, or pooled, to buy larger blocks of tickets in a given lottery or horse race. The solicitations falsely indicated that participants in the pool had a nearly guaranteed chance to win millions of dollars and that previous participants in the pool had already won millions of dollars. According to the indictment, the solicitations misrepresented that the companies were backed by governmental or legitimate lottery entities. As part of the scheme, the solicitations claimed that winnings were invested into trust or pension accounts that would pay monthly pension checks until the end of the victim’s life, and then would pay a survivor’s benefit as if the money were a life insurance policy.

Victims of the scheme were directed to send their money to mail drops in Ireland, The Netherlands and other locations, where participants in the scheme returned the money to the United States. From domestic bank accounts controlled by Henry Walther and others, some of the money was sent back to victims who were told that they were receiving “winnings,” even though the “winnings” were far less than the amount of money sent in by victims. The rest of the money was either spent to further the scheme or to enrich the defendants. Investigators estimate that victims lost approximately $20 million during the scheme, which ran for more than 15 years until it was shut down by federal agents in July 2006.

“This investigation brought an end to an elaborate scheme in which the perpetrators relied on the public's trust in the U.S. Mail to victimize some of our most vulnerable citizens, our seniors,” said Acting Inspector in Charge Robert Malaby. “Whether it's a pension fraud scheme or an illegal foreign lottery, when the U.S. Mail is used to commit fraud, Postal Inspectors are called upon to investigate and bring the perpetrators to justice. The U.S. Postal Inspection Service is committed to keeping our nation's mail system free from criminal misuse."

Debra D. King, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation Division in Los Angeles, stated: “The fraud committed by these individuals against innocent investors in the operation of their foreign lottery and pension schemes is a crime that IRS-Criminal Investigation takes seriously. This indictment, and the arrests of the perpetrators of this fraud, is indicative of our resolve to bring those who prey upon innocent investors, for their own financial gain, to justice.”

The 23 counts in the indictment carry a maximum statutory penalty of 460 years in federal prison and fines of up to $8.75 million.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until proven guilty in court.

http://www.justice.gov/usao/cac/Pressroom/pr2007/065.html

[the_thing]

Thanks to this thread I've ran out of popcorn. I demand a refund!

[enmaku]

If anyone cares, I had an interview with Sonny last night in which we discussed this whole mess.

http://codinginmysleep.com/interview-with-sonny-vleisides/

[Rassah]

History is full of people who have had some moral faults but then turned their life around.

Yeah, right. People always see the light. Having Sonny Vleisides watching over ten million dollars is like hiring Charles Manson as a baby sitter when he gets released from prison. Good luck with that.  

That is unfounded speculation, nothing more. We were told the money is held by the company, not Sonny himself.

I guess the next question would be, if the money IS held in a company bank account, does it require two signatures on the check to be spent, or is it still entirely under Sonny's control? (Until Innaba answers this, any claims will continue to be speculation).

I don't think any company would reveal to anyone other than their accountants how their financial control system works. So this will continue to be speculation forever I imagine.

Generally, it's standard practice for companies to have financial controls in place, unless they are very small or family privately owned. Since there is implication that the company ownership is shared among a few people (Sonny mentioned he was not the majority owner), all we really need to know is if they do have some financial control systems or not. Doesn't matter what the specifics are. And if they have financial controls, then Sonny's entire background is totally irrelevant.

EDIT: Judging by the interview, it looks like standard financial controls ARE in place, in which case, as I said, Sonny's involvement does not matter.

[Bitinvestor]

If anyone cares, I had an interview with Sonny last night in which we discussed this whole mess.

http://codinginmysleep.com/interview-with-sonny-vleisides/

Nothing new here. Only more secrets. Yawn.

[enmaku]

History is full of people who have had some moral faults but then turned their life around.

Yeah, right. People always see the light. Having Sonny Vleisides watching over ten million dollars is like hiring Charles Manson as a baby sitter when he gets released from prison. Good luck with that. 

That is unfounded speculation, nothing more. We were told the money is held by the company, not Sonny himself.

I guess the next question would be, if the money IS held in a company bank account, does it require two signatures on the check to be spent, or is it still entirely under Sonny's control? (Until Innaba answers this, any claims will continue to be speculation).

I don't think any company would reveal to anyone other than their accountants how their financial control system works. So this will continue to be speculation forever I imagine.

Generally, it's standard practice for companies to have financial controls in place, unless they are very small or family privately owned. Since there is implication that the company ownership is shared among a few people (Sonny mentioned he was not the majority owner), all we really need to know is if they do have some financial control systems or not. Doesn't matter what the specifics are. And if they have financial controls, then Sonny's entire background is totally irrelevant.

They do have financial controls in place. Furthermore, the fears of running away with BTC are moot since they only ever receive the tiny % of BTC they think they'll need for refunds as BTC. The rest is converted to USD by BitPay and deposited directly into a corporate bank account.

Seriously people, read: http://codinginmysleep.com/interview-with-sonny-vleisides/

[Desolator]

Now that the hardware exists, the CEO seems nice, we ran out of suspicious stuff to suspicify about on the forum about BFL!  Okay, I've got more, lol

CAUTION: the following post may cause your head to explode if your username is Inaba

It looks like all products use their own proprietary mining software that BFL wrote.  With such a custom interface on such a custom chip, I bet it'd take months for anyone to write an alternate mining software but they'd have no reason to.  So who says their software isn't rigged to wait 2 months post-release then steal your wallet file if it's not encrypted?  Or steal your miner account pass which may be the same as your pool account pass?  Or kidnap all your "best of" lolcat photos and hold them hostage!  Or install a browser plugin that tries to sell you group lottery ticket pool buy-ins? (Too soon? Hell no, lol)

I would take a guess that their software is about as open source as iOS lol.

[RHA]

It looks like all products use their own proprietary mining software that BFL wrote.  With such a custom interface on such a custom chip, I bet it'd take months for anyone to write an alternate mining software but they'd have no reason to.  So who says their software isn't rigged to wait 2 months post-release then steal your wallet file if it's not encrypted?  Or steal your miner account pass which may be the same as your pool account pass?  Or kidnap all your "best of" lolcat photos and hold them hostage!  Or install a browser plugin that tries to sell you group lottery ticket pool buy-ins? (Too soon? Hell no, lol)

You are either incredibly ignorant or a liar.
There was so many posts about the access to BFL's ASIC devices for the developers of different mining software.
It works, the latest version of BFGminer, for instance, is being prepared for the new devices:

Coming soon:

• FPGA Mining X6500
• Butterfly Labs's BitForce SC (ASIC) product line
• BTCFPGA's bASIC
• ASICMINER ASICs
• any other device provided for development (PM me)

[Unacceptable]

Now that the hardware exists, the CEO seems nice, we ran out of suspicious stuff to suspicify about on the forum about BFL!  Okay, I've got more, lol

CAUTION: the following post may cause your head to explode if your username is Inaba

It looks like all products use their own proprietary mining software that BFL wrote.  With such a custom interface on such a custom chip, I bet it'd take months for anyone to write an alternate mining software but they'd have no reason to.  So who says their software isn't rigged to wait 2 months post-release then steal your wallet file if it's not encrypted?  Or steal your miner account pass which may be the same as your pool account pass?  Or kidnap all your "best of" lolcat photos and hold them hostage!  Or install a browser plugin that tries to sell you group lottery ticket pool buy-ins? (Too soon? Hell no, lol)

I would take a guess that their software is about as open source as iOS lol.

You are one paranoid sumbitch   Take 6 hours out of your worthless life & READ THE THREADS ABOUT BFL before commenting further....PLEASE!!!!!! 

[niko]

Just lining up more pieces:

http://www.scribd.com/doc/106409576/Indictment-USA-v-Vleisides-Houston-Emmett-Cloud-Walther

This one is interesting:

RESTITUTION:Pursuant to 18 U.S.C. § 3663A(c)(3), restitution is not ordered because (1) the number of identifiable victims is so large as to make restitution impracticable [3663A(c)(3)(A)]; and (2) determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process [3663A(c)(3)(B)].

http://www.scribd.com/doc/106409553/Judgment-probation-order

(snip)

Victims of the scheme were directed to send their money to mail drops in Ireland, The Netherlands and other locations, where participants in the scheme returned the money to the United States. From domestic bank accounts controlled by Henry Walther and others, some of the money was sent back to victims who were told that they were receiving “winnings,” even though the “winnings” were far less than the amount of money sent in by victims. The rest of the money was either spent to further the scheme or to enrich the defendants. Investigators estimate that victims lost approximately $20 million during the scheme, which ran for more than 15 years until it was shut down by federal agents in July 2006.

Yes. This answers my earlier question:

Inaba stated that that preorders were not used to fund development and that outside investments (VC, etc) were taken.

Ah. Hmm, there goes that theory I guess! :-)

Unless the "VC" actually means his own savings from a scam...?

A likely theory. It's a good way to launder some money I guess. You take pre-orders, but finance the production with dirty money. This way all the scam money is hidden as working capital and eventually extracted as clean profits.

I cannot figure it out, but hopefully some can: how much of the alleged 25M has been recovered?

The answer seems to be: almost no money was recovered. Makes me wonder about the origin of "VC" investment, and how it brought Sonny to be in charge of BFL.

[Rassah]

The answer seems to be: almost no money was recovered. Makes me wonder about the origin of "VC" investment, and how it brought Sonny to be in charge of BFL.

He's not in charge of BFL

[Desolator]

I refuse to read anything and you can't make me, lol.  There may be other miners but who wrote the driver itself? Just being paranoid...wait no, it's not called paranoid, it's called being involved in bitcoin lol.

[the_thing]

I like how the general opinion has changed from 'BFL is a scam!!!' to 'everything seems legit' so quickly.