The Federal Trade Commission closes $50m scam.
US district court of Western Missouri has ordered shut down of Butterfly Labs; a bitcoin mining company, after the Federal Trade Commission complained that the company is deceptively marketing of computers to generate bitcoins.
The Federal Trade Commission claims that the company has cheated more than 20,000 consumers by charging a combined total of $50m, as of September 2013.
The company had started marketing its BitForce computers in June 2012 at a price range of $149 -$29,899 and introduced another model named Monarch in 2013 at a price range of $2,499 to $4,680.
Butterfly Labs allegedly shipped outdated computers that were unable to provide bitcoins, and in some cases the company did not ship the computers at all.
According to the FTC complaint more than 20,000 consumers did not receive the computers they bought as of September 2013.
Bitcoins are not backed physical assets or any central bank, and users can mine it only after they solve an increasingly complex algorithmic formula.
After the formula is solved, the users are awarded with a particular number of bitcoins.
As the mining progresses, user require more complex computer to solve the algorithms, and Butterfly Labs sold computers of every configuration.
FTC’s Bureau of Consumer Protection director Jessica Rich 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."