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Bitcoin burrower biz Butterfly Labs billed $38m for 'bilking' buyers

But rig builder will avoid coughing up full settlement

Butterfly Labs has been told to cough up $38.6m after it was accused of taking orders for Bitcoin mining machines and – rather than shipping the equipment – using the gear to generate piles of cyber-currency for itself.

The Kansas-based biz offered computer hardware optimized for mining BTC, and charged up to $30,000 for the number-crunching rigs. However, according to US trade watchdog the FTC, very few machines actually shipped because the company was building and using the systems for itself.

After getting 500 complaints from customers who hadn't receive their orders, the regulator temporarily shut down Butterfly Labs. In a few cases, machines did ship, but because Butterfly had spent ages using them beforehand, the hardware inside was no longer powerful enough to run the calculations involved in finding new Bitcoins, it was claimed. (Bitcoin mining gets progressively more difficult as new BTC is found.)

In all, the company took about $50m in orders it then failed to deliver, it is alleged. The FTC obtained a court order freezing Butterfly's assets in 2014. Now the watchdog has forced the biz into a $38m out-of-court settlement.

"Even in the fast-moving world of virtual currencies like Bitcoin, companies can't deceive people about their products," said Jessica Rich, director of the FTC's Bureau of Consumer Protection. "These settlements will prevent the defendants from misleading consumers."

Well, sort of. An FTC spokesman told The Register the $38m deal has been suspended because the firm's founders claim they are broke. Part-owner Sonny Vleisides will pay just $4,000, and the company will only pony up $15,000. However, if more assets are found they will be sequestered to pay off the suspended settlement.

In addition, Butterfly's general manager Darla Drake has been ordered to pay $135,878, but this will be suspended if she turns over all the Bitcoins generated by the firm's machines. Butterfly's customers won't be getting any refunds, we understand.

The company is still technically in business; the settlement forbids it from failing to ship any new hardware within 30 days, and from misrepresenting the capabilities of its hardware. Given the firm's record, the chances of anyone actually trusting them again is slim indeed. ®

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