Bogus Bitcoin Mining Operation Shut Down by FTC: Update

Bogus Bitcoin Mining Operation Shut Down by FTC: Update

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Update: According to new allegations made by Federal authorities, when Butterfly did ship mining machines to customers, it sent them used goods. Butterfly's practice was to use its machines to mine Bitcoins for Butterfly, and then send those machines on to the customers who had purchased them.

"Specifically, the testimony of several former employees and vice president of Product Development Josh Zerlan shows that instead of fulfilling orders immediately, defendants used their customers' machines to mine Bitcoins for themselves before shipping the now-used machines to their customers," FTC attorney Helen Wong told the court. "Thus, defendants pocketed Bitcoins that should have gone to their customers."

Wong went on to claim that Butterfly mocked its customers with foam pitchforks.

"Further demonstrating defendants' disregard for their customers, they used corporate funds to make and mass order red foam pitchforks mocking their own customers, emblazoned with the words, "Y U NO SHIP - BFL IS LATE!"

Source: Ars Technica

Some of Butterfly's machines were no better than room heaters, says the FTC.

At the Federal Trade Commission's request, a federal court has shut down Missouri-based Butterfly Labs, a company whose stated purpose was to market specialized Bitcoin mining computers. Butterfly was ripping off consumers to the tune of thousands of dollars per machine, according to the official complaint, and that was when Butterfly bothered to supply the machine at all.

Bitcoins need to be mined, and that requires significant computing power. Butterfly said it could supply machines dedicated to Bitcoin mining, and charged as much as $29,899 per machine. Its most efficient machine, at least according to Butterfly, was its Monarch, for which it asked customers to pay somewhere between $2,499 and $4,680 up front. At first the Monarchs were supposed to arrive by the end of 2013, then by April 2014. It's now well into August; guess how many customers have received the Monarch they paid for?

Did you guess none? Well done. There's some confusion as to whether Butterfly has a refund policy. The official complaint states that Butterfly has claimed to have a refund policy, and also said it had a no-refund policy. Often, when customers call Butterfly, nobody picks up the phone.

Before Monarch there was BitForce, another miner that, in 2012, was supposed to be in its final stages of development. The most expensive BitForce variant was the $29,899 model, but a cheap BitForce could be had for $149. Though plenty of people placed orders, over 20,000 customers were still waiting for their BitForce in September 2013. By November 2013 Butterfly insisted all BitForces had shipped, but its customers complained that they were still waiting for their machines.

That said, even if the machines had shipped there was no guarantee they would be worth the money. Bitcoin mining technology goes obsolete very quickly; according to the FTC, one Butterfly representative said that the passage of time rendered some of their machines as effective as a "room heater."

"We're pleased the court granted our request to halt this operation," says FTC director Jessica Rich, "And we look forward to putting the company's ill-gotten gains back in the hands of consumers."

The defendants - Butterfly Labs General Manager and Treasurer Darla Drake, President and CTO Nasser Ghoseiri, and Sonny Vlesides, Founder and Innovation Officer - have been ordered to immediately stop making misrepresentations about their products and services, and a freeze has been put on their assets.

Butterfly has said it is deeply disappointed, calling the FTC action a rush to judgment, with the FTC as judge, jury and executioner. "It appears the FTC has decided to go to war on Bitcoin overall and is starting with Butterfly Labs," it said in an official response.

Source: Federal Trade Commission

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Sooo.... fools getting ripped off? Sounds to me like perfect libertarianism in action. I thought that's what all those bitcoin fans liked so much.

McKitten:
Sooo.... fools getting ripped off? Sounds to me like perfect libertarianism in action. I thought that's what all those bitcoin fans liked so much.

Fraud is kind of still illegal in a libertarian state. At least in so far of what I've been told. No need to be disingenuous about the situation.

Butterfly Labs? The Monarch? Sounds like the kind of operation THE MONARCH (as in Venture Bros.) would run. Only he'd be smart enough to shoot all his henchmen and run, rather than argue that the FTC is pulling a totalitarian move by not letting them royally (sorry, puns) screw over everyone.

I just looked at "the Monarch" and a the cheapo model. Its highness is a damned video card with a self-contained water cooling unit strappped to it. I'd bet you could get a beefy video card, liquid cooler if you wanted and the rest of a PC for the same $1400 list price and find free mining software online. The cheapskate option is a stupid USB dongle, not a full computer.

Also, it said "All sales final," in big ol' print at the bottom of the cheapster's page. That right there just tells me they're at least out to screw their budget minded customer base. The FTC can tear them apart for all I care, as long as it isn't distracted from two mergers that are about to destroy America's fragile internet situation.

BFL had released a line of miners before BitForce and though I had not used one personally they seemed well received by their customers. I bought their BitForce model on Aug 17, 2012, about a month or two after it was first up for preorder, received it on Sep 13, 2013. I'm lucky it worked and even luckier that I got it just in time to make my money back and about 60% profit. If it came even a week or two later I would have been in the red.

In equally shocking news, the sun rose this morning.

So it turns out that Bitcoin is exactly the pyramid scheme that everybody thought it was. C'est la vie.

Really? The FTC is rushing its judgment and chosen to "go to war with Bitcoin"? No, the FTC are doing their jobs. Regardless of whether Bitcoin is real money or not, note that the name of the FTC is "Federal TRADE Commission", not "Federal DOLLARS Commission". It doesn't matter if what's being traded is US dollars, stocks, bonds, goats and chickens and, yes, even imaginary Internet money, if someone agrees to some kind of trade and is ripped off or scammed then the FTC has the authority to step in.

Also, as an aside: I've heard of people trying to compare Bitcoin to EVE Online ISK, presumably because they both have a strong libertarian streak. There is a substantial difference: if you read the EVE Online EULA, you will see that it is specified that CCP (the developers) are the legal owners of all virtual property in EVE Online (and this is almost always the case in other MMOs). ISK has no real-world value because you cannot sell it for real money.

BF may not have an official refund policy. However, that does not mean that BF is allowed to just operate under a perfect caveat emptor system. A scam is a scam, and when you get ripped off for thousands of dollars then, refund policy or not, you're entitled to seek legal recourse. This isn't a case of a company simply being unable to meet customer demands in which case it MIGHT be excusable. BF made no effort at all to meet demands, on top of that, when they did get their hands on their customers' money they used the machines (which were built to order, I assume) to turn a profit for themselves before passing them off to customers. None of that is acceptable business practice.

A free market also has to be fair and there will always need to be some kind of regulation to maintain a level playing field. If people are allowed to just run around and rip people off then it's not a free market.

So, the bogus worthless fake money added an additional level of swindling people to its repertoire, did it? Well, fancy that. Prepare to be sued for REAL money, boys. Them bits are more worthless than a pair of bladeless scissors.

FalloutJack:
So, the bogus worthless fake money added an additional level of swindling people to its repertoire, did it? Well, fancy that. Prepare to be sued for REAL money, boys. Them bits are more worthless than a pair of bladeless scissors.

People trade the equivalent of over a million dollars every day in bitcoin. The lowest number of daily trades in recent memory is a bit over 50,000, with some days approaching 90,000.

Currency has no inherent value, only that which we ascribe to it; and people have ascribed quite a bit to bitcoins. The anonymity aspect obviously benefits more shady markets like deep web drug buys, but it's hardly "fake money" any more than the US dollar is (especially since the US dollar is no longer tied to gold standard). The big difference is that the US dollar has the weight of its government behind it, and bitcoins are just on their own. If you lose it or they get stolen, nobody's gonna help you out. Aside from that, they're both valid forms of currency.

AuronFtw:

FalloutJack:
So, the bogus worthless fake money added an additional level of swindling people to its repertoire, did it? Well, fancy that. Prepare to be sued for REAL money, boys. Them bits are more worthless than a pair of bladeless scissors.

People trade the equivalent of over a million dollars every day in bitcoin. The lowest number of daily trades in recent memory is a bit over 50,000, with some days approaching 90,000.

Currency has no inherent value, only that which we ascribe to it; and people have ascribed quite a bit to bitcoins. The anonymity aspect obviously benefits more shady markets like deep web drug buys, but it's hardly "fake money" any more than the US dollar is (especially since the US dollar is no longer tied to gold standard). The big difference is that the US dollar has the weight of its government behind it, and bitcoins are just on their own. If you lose it or they get stolen, nobody's gonna help you out. Aside from that, they're both valid forms of currency.

I have had this conversation before. It's no more real than game money for your MMO, in reality. It's less money or data-backed money and more funny-money or psuedo-money. It's a degree or two of separation from the real thing. Frankly, since the people in the last debacle couldn't use it to pay for court costs, it's not real.

Butterfly has said it is deeply disappointed, calling the FTC action a rush to judgment, with the FTC as judge, jury and executioner. "It appears the FTC has decided to go to war on Bitcoin overall and is starting with Butterfly Labs," it said in an official response.

...No, it appears like you were so confident you could get away with ripping people off that you decided to double down and taunt them.

Too bad, thanks for playing, Butterfly Labs. We hope you will enjoy these lovely parting gifts, and that they will serve to remind you that in the grand scheme of things, you didn't prove any smarter than the people you were trying to defraud.

Well at least someone figured out how to make money out of bitcoins

FalloutJack:
I have had this conversation before. It's no more real than game money for your MMO, in reality. It's less money or data-backed money and more funny-money or psuedo-money. It's a degree or two of separation from the real thing. Frankly, since the people in the last debacle couldn't use it to pay for court costs, it's not real.

The only thing making anything valuable is people believing it's valuable. It doesn't matter whether it's a bitcoin or a dollar or a block of gold or a kindergartner's crayon drawing. If enough people have it and/or are willing to trade something for it, it's a real currency. There are probably at least a dozen state currencies less acceptable than BitCoin at this point.

Veylon:

FalloutJack:
I have had this conversation before. It's no more real than game money for your MMO, in reality. It's less money or data-backed money and more funny-money or psuedo-money. It's a degree or two of separation from the real thing. Frankly, since the people in the last debacle couldn't use it to pay for court costs, it's not real.

The only thing making anything valuable is people believing it's valuable. It doesn't matter whether it's a bitcoin or a dollar or a block of gold or a kindergartner's crayon drawing. If enough people have it and/or are willing to trade something for it, it's a real currency. There are probably at least a dozen state currencies less acceptable than BitCoin at this point.

Ah, well in that case, the world's supply of BS (No, not implying anything about you.) must be priceless. Still, this is not legal tender. Religion is a powerful belief, but you can't pay your bills with it. You can pray for donations from generous people and pay them THAT way, but that's back down to good solid cash. It's not money, it's...

...a stand-in!

FalloutJack:

Ah, well in that case, the world's supply of BS (No, not implying anything about you.) must be priceless. Still, this is not legal tender. Religion is a powerful belief, but you can't pay your bills with it. You can pray for donations from generous people and pay them THAT way, but that's back down to good solid cash. It's not money, it's a stand-in!

On the contrary, BS is invaluable. That's all that holds up the value of BitCoin. Enough people believe in it's value and BOOM it has value. It's all that holds up any fiat currency. It's all that holds up the value of gold. Somebody has to want it and be willing to trade for it. Without everyone inhaling the same aroma of BS and participating in the same mass delusion, none of the theoretical values of anything would make any sense. Currency, like ownership or law, exists only by agreement. It's realness is based upon the number of people agreeing. When there's an active, functioning government doing the backing, everyone can at least agree that the government will prop the value up, even if they themselves don't value the currency.

Look up bank notes sometime. This was paper money issued by banks. They help illustrate the concept better because they fall into the gray area between legit currency and worthless paper. They are totally considered real money in the vicinity of the issuing bank but gradually become less and less so the farther away they get and the harder it is to bring them back and redeem them for solid metal coinage.

Veylon:
Snip

Ah, banks. I've been meaning to mention banks. One reason why bitcoins don't make any sense (No pun intended.) is that banks handle currency electronically already, and they're both legal and insured. The only thing investing in bitcoins proves is that there are alot of gullible suckers in the world who'd back something as hokey as a generous Nigerian Prince scam. I'm sorry, but the difference between the two is (eerily) the Wicked Witch of the West and the Wizard of Oz. One has real magic and the other is smoke and mirrors. (Ironically, the Witch is green, which is associated with greed and envy.) I know you're playing up a dangerous post-modernistic feeling here, but the fiction has not become the truth.

FalloutJack:
I'm sorry, but the difference between the two is (eerily) the Wicked Witch of the West and the Wizard of Oz. One has real magic and the other is smoke and mirrors.

You realize that in this analogy, smoke and mirrors won?

Pyrian:

FalloutJack:
I'm sorry, but the difference between the two is (eerily) the Wicked Witch of the West and the Wizard of Oz. One has real magic and the other is smoke and mirrors.

You realize that in this analogy, smoke and mirrors won?

The irony of the statement was not missed. Feeds into the gullible human factor. Doesn't make it right or genuine.

FalloutJack:

Veylon:
Snip

Ah, banks. I've been meaning to mention banks. One reason why bitcoins don't make any sense (No pun intended.) is that banks handle currency electronically already, and they're both legal and insured. The only thing investing in bitcoins proves is that there are alot of gullible suckers in the world who'd back something as hokey as a generous Nigerian Prince scam. I'm sorry, but the difference between the two is (eerily) the Wicked Witch of the West and the Wizard of Oz. One has real magic and the other is smoke and mirrors. (Ironically, the Witch is green, which is associated with greed and envy.) I know you're playing up a dangerous post-modernistic feeling here, but the fiction has not become the truth.

They're legal and insured now, but didn't used to always be the case. Banks, too, could be fly-by-night operations back in the good old days. I'm not even trying to push BitCoin: I don't have any, I don't trust it, and I don't want any. I have the strong feeling that somebody's going to invent quantum computing - or some other fancy method for extracting the things from the ether - one fine day and suddenly drive the price down to near nil. Or maybe some hacker would magically empty my wallet. The things are way too volatile for me.

BitCoin is like cash. If you put your cash in your mattress and somebody robs it, too bad. There aren't any BitCoin banks, though if enough people buy into the smoke and mirrors, there might be. If someday you can walk into a building with a granite facade and talk to a real live person about your BitCoin account and have real pieces of paper showing your insured balance, then would you buy into it? I bet a good number of people would.

My main point is that it's all smoke and mirrors. What are Reichsmarks worth these days? Or Syrian Pounds? Or Drachma? Or Zimbabwe Dollars? Putting faith a national government doesn't keep the value up unless everyone has faith in it. If everyone started trading away their dollars and started hoarding euros, dollars would lose their value and euros would gain. This is the kind of dynamic that happens with a nation borrows money or goes to war or fiddles with the tax rates or does nearly anything. Trust for this government or that waxes or wanes incrementally (or sometimes catastrophically) and the currency markets adjust accordingly.

Veylon:
Zooba

Ah, but money that has BEEN money is not smoke and mirrors. As you know, the concept behind the trade of money evolved from the barter system as a representation of goods and/or service. It is, essentially, a massively-grandfathered tradition which spawned the principles of economics. That a country decided to have its own currency and that its value differs from another based upon the value and running of said government is not a farce of a grandscale measure, or else all of the international debts from country to country for god-knows-what could be erased or at least pushed back by a few zeroes. I had actually asked about this in another thread a long time ago about all the worldwide debts and was cited a bunch of reasons for why that doesn't work. If you can't manipulate the numbers so easily, they must mean something legally that refuses to change.

Now, compare the history of money - along with the ups and downs of economics - and where it all came from...to Bitcoins. It's come out of nowhere and nothing and represents no one, certainly not by actual laws or a government...which is kind of important. It doesn't represent anything BUT numbers, and IS the too-easy manipulation of them. If money and bitcoins were sports, money would be like baseball or football...while bitcoins would be Calvinball. If this keeps up, I'm going to declare that badass beards are as priceless as Ming Dynasty Vases, and every badass beard-bearer will agree with me. After that, I WILL RULE THE WORLD...somehow.

FalloutJack:

Veylon:
Zooba

Ah, but money that has BEEN money is not smoke and mirrors. As you know, the concept behind the trade of money evolved from the barter system as a representation of goods and/or service. It is, essentially, a massively-grandfathered tradition which spawned the principles of economics. That a country decided to have its own currency and that its value differs from another based upon the value and running of said government is not a farce of a grandscale measure, or else all of the international debts from country to country for god-knows-what could be erased or at least pushed back by a few zeroes. I had actually asked about this in another thread a long time ago about all the worldwide debts and was cited a bunch of reasons for why that doesn't work. If you can't manipulate the numbers so easily, they must mean something legally that refuses to change.

Now, compare the history of money - along with the ups and downs of economics - and where it all came from...to Bitcoins. It's come out of nowhere and nothing and represents no one, certainly not by actual laws or a government...which is kind of important. It doesn't represent anything BUT numbers, and IS the too-easy manipulation of them. If money and bitcoins were sports, money would be like baseball or football...while bitcoins would be Calvinball. If this keeps up, I'm going to declare that badass beards are as priceless as Ming Dynasty Vases, and every badass beard-bearer will agree with me. After that, I WILL RULE THE WORLD...somehow.

Yes! Now we're on the same page, a couple definitions aside. I'm still going to point out that "legally" really means "a lot of people accept it this way". Debt isn't physically solid, but is held up by people believing that this thing ought to go to this person because they gave this thing to them first and wrote it all down and wrote their names badly on the bottom. You can't manipulate the numbers because all the other people have copies of the paper you wrote and will be mad if your different numbers mean that you won't give them the stuff you said you would. And then other people won't want to lend you stuff unless you promise them even more stuff back.

Veylon:

Yes! Now we're on the same page, a couple definitions aside. I'm still going to point out that "legally" really means "a lot of people accept it this way". Debt isn't physically solid, but is held up by people believing that this thing ought to go to this person because they gave this thing to them first and wrote it all down and wrote their names badly on the bottom. You can't manipulate the numbers because all the other people have copies of the paper you wrote and will be mad if your different numbers mean that you won't give them the stuff you said you would. And then other people won't want to lend you stuff unless you promise them even more stuff back.

image

I know how it all is suppose to work. Though, I seem to recall a news report here on the Escapist saying that bitcoins aren't money but some kind of taxable property that has to be snarled through, an act which probably makes it suffer hideously. Even still, I think we can both agree that an economy based upon these things would be Great Depression-level disastrous. Barely out of the gates as is, and...reports of fraud, hacking, scheming, drug running... (This would take a bit of a search to re-find, but it's all in there.) I feel like one of my best arguments against it all is that Gox wasn't allowed to pay court costs in bitcoins. That must've hurt.

 

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