The Federal Trade Commission (FTC) has shut down Butterfly Labs (BFL) over alleged fraud. Company assets will also be frozen, earmarked for restitution to customers.
Permission for the closure, which is pending trial, was granted by the US District Court for the Western District of Missouri.
The bitcoin mining equipment manufacturer had been the subject of over 300 complaints to the FTC, which accused the company of unfulfilled/delayed shipments and refunds, contrary to what the company had advertised.
Social media forums had been full of talk accusing BFL of being scammers for months. BFL was also accused of orchestrating the takeover of the Buttcoin website and removing posts critical of the company.
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Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said:
“We often see that when a new and little-understood opportunity like bitcoin presents itself, scammers will find ways to capitalize on the public’s excitement and interest. 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.”
Several other mining equipment manufacturers have been the subject of similar controversy. The FTC action may serve to embolden customer claims of rampant misconduct throughout the industry, and even motivate authorities to investigate other companies.
The developmemt also underscores the prevalence of risks still threatening the crypto industry. These now go beyond hacking and theft of bitcoins, price volatility, illegal trade and Ponzi schemes, now entering the realm of physical goods manufacturing.