Butterfly Labs Shipping Scam Ends

The FTC (Federal Trade Commission) has shut down Bitcoin mining hardware giant Butterfly Labs. The Federal complaint states that BFL intentionally delayed shipment or never shipped at all to customers that had already paid for the equipment.

For as long as I’ve been interested in Bitcoin I’ve heard about Butterfly Labs and their delivery problems. They were one of the first companies to sell Bitcoin mining hardware and according to the FTC one of the most unscrupulous.

FTC vs Butterfly Labs at a glance

The Federal case is very simple. Butterfly Labs intentionally delayed shipment to customers so that they could use the miners themselves first. In some cases customer never received the miners at all or any refund. When it comes to BTC mining time is everything, since mining gets more difficult each day. So be delaying the shipment BFL essentially devalued the merchandise that had already been paid for.

The FTC went further saying that Butterfly Labs knew exactly what it was doing and that delays were often so long that by the time the hardware was shipped it was effectively obsolete. A former employee acting as a source claims that BFL Management would mine on customers’ machines under the guise of “burning them in”. This would usually last for days at a time which is technically unnecessary. The employee alleges that in some cases machines would keep running until newere machines were available to replace them.

In a nutshell – Butterfly Labs had customers pay for mining equipment so BFL could mine their own coins.

In Their Own Words

BF Labs, Inc. has been placed in a temporary receivership pursuant to court order. Questions may be directed to the temporary receiver at:

– Butterfly Labs website

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.

– Jessica Rich, director of the FTC’s Bureau of Consumer Protection

To put things in context. The way ordering ASIC miners from the company worked is based on a pre-order system. Customer order from the website and pay for the miners and then wait anywhere from 2 months to a year for the equipment to arrive. I’ve seen many unhappy customers complain about delivery dates changing from BFL and many allegations that the company was a scam using the equipment themselves to mine Bitcoins. It appears that we finally have an answer and the FTC claims to have solid proof of it.

Even worse, the former employee claims that BFL Management had foam torches made mocking customers that complained about delayed delivery. Intentionally defrauding customers and then laughing about it. Not a good combination.