FTC v. Butterfly Labs: Complaint and Response

The Federal Trade Commission (FTC) filed suit against bitcoin-mining hardware manufacturer, BF Labs, Inc. d/b/a Butterfly Labs, on September 15, 2014 alleging misrepresentations and deceptive omissions regarding the marketing and manufacturing of the BitForce and Monarch mining machines.  Among other relief, the suit seeks temporary and permanent injunctions as well as disgorgement of money.

A copy of the suit is here.  BUTTERFLY-ORANGE-969x1024

The Complaint alleges that “as of September 2013, [Butterfly] had failed to ship mining machines to more than 20,000 customers who had paid for the equipment in full.”  Butterfly allegedly posted online that it had shipped all orders for BitForce machines by November 2013 however the FTC claimed that consumers “continued to file complaints about not receiving their prepaid BitForce mining machine.”

As for Monarch machines, the Complaint alleged, ‘[a]s of August 2014, [Butterfly] had yet to ship a single Monarch machine.”

In this type of ex parte action, a temporary order was issued and a local lawyer was appointed as receiver for Butterly.

Butterfly filed its Response arguing that the temporary restraining order was “unwarranted” and that the FTC was harming consumers by its actions.  While admitting that Butterly had “unquestionably experienced growing pains,” they argue that, among other reasons, it was the competitive mining market and slow PC component delays which contributed to the situation — noting that “almost every other equipment manufacturer has been attacked: HashFast… Cointerra… and KnC Miner…”

Butterfly’s Response reveals that it was sued in a putative class action (which is in the discovery phase) and that, separately, Butterfly was investigated by the local district attorney.

Butterfly claims that it handed over more than $11 million dollars in bitcoin to its receiver and is cooperating.  It claims that it has a “clear and conspicuous” “two months or longer” warning.  As for refunds, Butterfly avers that it has refunded money for all pre-Monarch machines; shipped or refunded every Monarch order between August – November 2013; and is processing returns for more recent purchases.

The Response is here.

A hearing is set for September 24.

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