Court Order approves liquidation of Butterfly Labs’ bitcoins, takeover of business

The United States District Court For The Western District of Missouri has approved a Motion to grant total control over

The United States District Court For The Western District of Missouri has approved a Motion to grant total control over Butterfly Labs’ (BFL) assets to the Temporary Receiver, Eric L. Johnson.

The Court Order by Judge Brian C. Wimes was filed yesterday. It represents a new turning point in a saga that has seen BFL accused by the Federal Trade Commission (FTC) of malpractice on a grand scale. The hardware manufacturer has allegedly failed to adequately fulfill customer orders and refunds, even allegedly using customer-ordered hardware for their own bitcoin mining operations. As a last resort, BFL asked the court to dismiss FTC charges, claiming the Commission is out to destroy the company.

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The highlight of yesterday’s Order is the license to liquidate BFL’s bitcoin holdings, part of measures to “begin establishing an adequate cash reserve to cover potential refund liability.” The document continues:

“In this respect and under the supervision of Temporary Receiver, the following actions may occur immediately . . . Conversion of Receivership Defendant’s substantial bitcoin holdings to cash on a systematic and reasoned basis.”

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The Order requires all parties to “cooperate in transferring Receivership Defendant’s bitcoins to a Court-controlled bitcoin wallet.”

It is not every day that you come across the term “Court-controlled bitcoin wallet”. In general, Bitcoin’s decentralized nature makes it impossible for any authority to freeze or control its possession.

Several days ago, it was reported that an Australia court may auction off a significant quantity of bitcoins seized from a convicted Silk Road dealer. In the summer, a large quantity of bitcoins seized from Silk Road’s servers were auctioned off by the US Marshals Service. In such instances, authorities gained access to the coins’ private keys, like getting their hands on dirty cash.

If BFL previously moved its coins outside the universe of the assets under receivership, then the court has no recourse to cover liabilities. What’s more is that BFL’s operators are free to then personally regain possession of the coins’ and/or liquidate them, without any fear of authorities catching up to them.

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