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Court Order: Butterfly Labs Bitcoins To Be Sold

Posted by timothy on from the now-there's-a-flap dept.

MrBingoBoingo writes In a new development in the case against Butterfly Labs, the court overseeing the case has ordered bitcoins held by Butterfly Labs to be turned over to the court-appointed temporary receiver. The order also gives the receiver authorization to convert the bitcoins "to cash on a systematic and reasoned basis." The justification for this measure is at least to ostensibly create reserves with which refunds for Butterfly Labs' customers may be paid.

66 comments

  1. That was a near miss by namhash · · Score: 1

    Almost put money down on one of these....

    1. Re:That was a near miss by Ralph+Wiggam · · Score: 1, Insightful

      You're joking, right?

    2. Re:That was a near miss by dex22 · · Score: 4, Interesting

      I bought one of these. It took a VERY long time to arrive, and only worked for a few weeks. I contacted them for warranty repair and they simply never responded after that. I am out around $3000.

      I'm not a fool or idiot. When I ordered, the marketplace was quite simple and they were the most promising option. It was only after most of us placed our orders with BFL that the trend in the market for pre-orders (and incredibly late deliveries) began, took shape and gained meaning as a deal-breaker.

      The current bad actor in this is Black Arrow - and their reseller, MinerSource. They are 9 months behind on delivering Prospero X1s, and if you call or write, they tell you, "you can cancel your order, but there are no refunds. Here's a link to our non-existant terms you agreed to, which did not exist at the time."

    3. Re:That was a near miss by Cruciform · · Score: 3, Interesting

      I actually managed to get my refund back from BFL, shocking as it seems.
      When I ordered the Monarch there was no "6 months before you can request a refund policy", but they still denied me the refund at first. And then immediately flagged my forum account as moderated.
      When I used info from their site to contact the AGs in Kansas and Wyoming (they claim to be a Wyoming Corporation on their site, though Wyoming says they don't exist as an entity there at all) I posted it to see what the moderator would do. Instant ban.
      Still, on the day the 6 months was up I requested my refund and two days after they said it was wired I got it back.
      I was fortunate. There were other fellows on the BitcoinTalk forum out as much as 60K versus my 2K.

    4. Re:That was a near miss by Ralph+Wiggam · · Score: 2

      Of course there are reasons why BFL is getting in trouble here.

      My question is when did you place your order with them? I'm not part of that scene, but I know there have been serious questions about BFL for a very long time. My friend got kicked out of CES in January 2013 for causing a scene at their booth, basically accusing them of being scammers.

    5. Re:That was a near miss by WhoBeDaPlaya · · Score: 3, Interesting

      Was this for their ASIC or FPGA miners? To their credit, the FPGA miners worked well and ran reliably. Heard some grumblings about the bundled power bricks, but don't know about that since I ran mine off of a regular PSU.

  2. Hardware Ponzi Scheme by WhoBeDaPlaya · · Score: 4, Interesting

    I got in early on a bunch of their FPGA miners. Made obscene money mining and a tidy profit after I sold them and decided to quit mining.

    1. Re:Hardware Ponzi Scheme by DigiShaman · · Score: 1

      Back when they took pre-orders, I placed an order. At one point, I was wondering if it would be worth the investment after launch. A week later after I ponder that question, I received an e-mail from Butterfly Laps asking if I still wanted the order, or cancel with a refund. I took the refund in a heartbeat and never regretted the decision.

      I feel like dodged a bullet. I almost had been "had" by this fucking company.

      --
      Life is not for the lazy.
    2. Re:Hardware Ponzi Scheme by Anonymous Coward · · Score: 1

      I don't know if ponzi scheme is exactly right. BFL is a shit company, for sure. They lied about release dates, lied about when they'd ship stuff out, lied about performance, treated customers poorly, ripped some people off outright by not sending them hardware, made a fool of themselves socially by telling customers if they complained publicly they'd refuse to ship them hardware, and then lowered the cost of hardware before they even shipped the stuff to the first guys (and randomly raised it too).

      But ponzi scheme isn't the right fit. Scumbag lying scam artists, though... that works well.

    3. Re:Hardware Ponzi Scheme by jythie · · Score: 2

      If one is going to be generous, they could also be thought of as people who had honest intentions but got in WAY over their heads.

      In a completely different industry, you see this basic pattern with people on Ravelry who try to dip into selling yarn they spin. Sometimes you will get people who honestly want to do it but just don't have the skills or resources to deal with the project they take on. They work hard, things start to fall apart, they panic, and then the PR mess starts.

    4. Re:Hardware Ponzi Scheme by Anonymous Coward · · Score: 1

      What apparently happened is that they were going in to take advantage of the fact that BTC were still minable without heavy duty ASICs, but people were wanting something to make coins.

      Of course, the main thing is that the company tried to make money and split during a time where so many people came to the BitCoin table, but before the players with vast CPU power that it made it pointless for all except them to bother mining coins. A box on my desk which has to mine at least five coins before I see any return would be sitting there indefinitely.

      Ironically, BFL could have stayed in the game long term, had they offered FPGA based items, and the ability to switch currencies. I can mine altcoins or dogecoins and turn those into BTC for a lot better returns than I can crunch BTCs out.

    5. Re:Hardware Ponzi Scheme by ultranova · · Score: 4, Insightful

      A Ponzi scheme is when you use money from later investors to pay earlier ones to create an illusion of a profitable business where none exists. For a hardware vendor to pull a Ponzi scheme on their customers would require them to conduct some weird "send us a computer, we'll send you two later" stunt. Not delivering paid-for hardware is a simply fraud, not a Ponzi scheme.

      Seriously, stop calling every shady business practice a Ponzi scheme.

      --

      Forget magic. Any technology distinguishable from divine power is insufficiently advanced.

    6. Re:Hardware Ponzi Scheme by ShaunC · · Score: 3, Insightful

      It sounds like you lucked out. From everything I've read, the business plan is indeed a pyramid of sorts,

      1. Announce upcoming mining rig that beats everything on the market
      2. Begin taking pre-orders
      3. Use pre-order money to actually source the dream hardware you promoted in step 1
      4. Hardware arrives, use it yourself for several weeks to mine your own BTC while it's still profitable
      5. During this time, apologize to everyone who has placed orders and ensure them that delivery will be made soon
      6. Once your new top-of-the-line rigs are a few weeks out of date, order a new round of even better hardware
      7. Ship your rigs to your customers
      8. Repeat ad infinitum

      That you actually managed to get some rigs that were still worth using is pretty nice. I guess they hadn't yet figured out how the mining hardware pyramid is supposed to work. The fact that people are still falling for this ploy after it's played out several times over in very public fashion is rather depressing, though.

      --
      Thanks to the War on Drugs, it's easier to buy meth than it is to buy cold medicine!
    7. Re:Hardware Ponzi Scheme by Anonymous Coward · · Score: 0

      Repeat ad infinitum

      No, pretty sure they didn't have any delusions about being able to continue this forever.

    8. Re:Hardware Ponzi Scheme by Anonymous Coward · · Score: 0

      Ponzi scheme is a good description for everything bitcoin, it was more or less openly designed to allow first adopters to get rich on the back of new users ariving after the easy coin were mined. The whole ASIC market is like the people trying to sell tools to make MLM schemes work for the new arrivees.

    9. Re:Hardware Ponzi Scheme by david_thornley · · Score: 1

      You can run a Ponzi scheme with hardware. It costs you $125 to make an X, and you anticipate cascading sales so you sell an X for $100. You have to send something to your earlier customers, so you use money from your later customers to produce it. You figure when your peak likely is, so you loot the company and vanish.

      --
      "When you have eliminated the unacceptable, whatever is left, however improbable, must be the truthiness" - Holmes
    10. Re:Hardware Ponzi Scheme by forrie · · Score: 1

      I essentially accused them of this a year or so ago. I managed to get my CC company to refund two charges (undelivered items), after clearly outlining my theory and showing several cases where I suspected them of fraud; the one I got stuck with (because I paid cash, silly me), eventually crapped out. I got no response from them about it, either (it's a smaller ASIC 5 gh/s).

      I'd like to see some of them go to jail...

  3. So ... WTF is it? by Anonymous Coward · · Score: 2, Insightful

    Since TFA and TFS don't actually use any big-boy words to tell us who the hell Butterly Labs are ... what the hell are they and why the hell should I care?

    1. Re:So ... WTF is it? by tyggna · · Score: 3, Informative

      They were a circuit board and IC provider that specialized in bitcoin mining hardware.

    2. Re:So ... WTF is it? by jythie · · Score: 4, Informative

      They were one of the early companies making ASIC Bitcoin rigs and had a bit of a reputation for long delayed delivery, often to the point the rigs could not make the money back.

    3. Re:So ... WTF is it? by Anonymous Coward · · Score: 0, Insightful

      A note to the incompetent and lazy "editors" ... this is part of your job.

      Except, editors at Slashdot seem to be allowed to be lazy and incompetent.

    4. Re:So ... WTF is it? by Anonymous Coward · · Score: 1

      They made "shovels" that people could use to mine for bitcoins. Except the shovels weren't available for shipment, but they took pre-orders (and payment) anyways. Most of the shovels never got shipped, and when some customers did receive shovels, it seemed that the shovels have been used already, possibly by the company.

      So the company sat on a pile of cash from pre-orders, didn't ship shovels to customers, used the customers shovels to mine for bitcoins, and then eventually shipped some of these used shovels out to customers.

      Then the company declared bankruptcy.

    5. Re:So ... WTF is it? by jythie · · Score: 1

      To be fair, editors have to take guesses at what is going to be common knowledge in the readership vs things that need to be explicitly stated. It is not always an easy thing to get right, and always erring on the side of explaining is its own problem.

    6. Re:So ... WTF is it? by aardvarkjoe · · Score: 3, Insightful

      To be fair, editors have to take guesses at what is going to be common knowledge in the readership vs things that need to be explicitly stated. It is not always an easy thing to get right, and always erring on the side of explaining is its own problem.

      It's too bad that nobody has invented a method where a link to a full explanation could be included within the summary itself. Maybe when people start using this new-fangled "world wide web" thing, we'll be able to do cool things like that.

      --

      How can we continue to believe in a just universe and freedom to eat crackers if we have no ale?
    7. Re:So ... WTF is it? by Anonymous Coward · · Score: 0

      Also, the ground is rapidly getting harder to dig into.

    8. Re:So ... WTF is it? by the+real+darkskye · · Score: 0

      That link you describe? Man it sounds hyper!

      --
      Music is everybody's possession.
      It's only publishers who think that people own it.
      Fuck Beta
      ~John Lenno
    9. Re:So ... WTF is it? by jythie · · Score: 1

      Even that can get obnoxious. For instance, it is unlikely here anyone needs to have Microsoft or Intel explained to them. What companies will be instantly recognizable to the community is not always obvious and you do not want to assume that everything needs to be explained.

  4. Nice by Anonymous Coward · · Score: 0

    Courts recognizing Bitcoins as holding value and being convertible to dollars. That's a big step over prior digital currencies or digital scrip.

    1. Re:Nice by Holi · · Score: 1

      No, they recognized the mining rigs as having value, and that they were either delayed to the point of obsolescence or never shipped at all.

      --
      Sorry, teleporters just kill you and then make a copy. A perfect, soul-less copy.
    2. Re:Nice by stevez67 · · Score: 5, Insightful

      Recognizing the value of an asset (e.g. stocks, bonds, paintings, sculptures and etc.) doesn't confer legitimacy as a currency.

    3. Re:Nice by Anonymous Coward · · Score: 1

      I don't believe the feds ever really rejected crypto currency or refused to acknowledge it. in fact didn't they come out recognizing its legality and all

    4. Re:Nice by Anonymous Coward · · Score: 0

      Recognizing the value of an asset (e.g. stocks, bonds, paintings, sculptures and etc.) doesn't confer legitimacy as a currency.

      "Legitimacy" of any currency is just groupthink. This court is just recognizing that Bitcoin is currently has more in common with things like volatile, convertible assets like penny stocks, junk bonds, etc than it has in common with non-convertible things like airline miles, coupons, etc.

      The more authorities (i.e. courts, banks, merchants) the recognize that Bitcoin is readily convertible, the more "legitimacy" they confer on Bitcoin as a currency. It takes many years and many actors involved. Nobody can wave a magic wand and accomplish it overnight.

    5. Re:Nice by jythie · · Score: 1

      Given how previous attempts at digital currencies often were not even legally recognized as having value at all, it is still a big step.

    6. Re:Nice by stephanruby · · Score: 0

      At least, it does offer "some" legitimacy.

      Judge Judy threw a case out once because both parties had colluded to try to avoid paying taxes, by marking the value of a car as $1 on the title of ownership, despite contrary proof that the transaction had been for several thousand dollars.

      Then she said something like:

      Taxes pay for this court. Taxes pay my salary. If you choose to make a contract that goes outside the law, don't expect the justice system to support that contract when something goes wrong. The same goes for drug dealers who have a drug deal go bad, or someone who knowingly buys stolen property.

      Just imagine if a judge who doesn't like bitcoins, or just doesn't understand them, had said something similar about bitcoins. That would have set a precedent and that would have been a PR-nightmare for bitcoins. In a way, I also think it helped that the Federal US Marshalls repossessed bitcoins from the Silk Road a while back and resold them for 89 million dollars. By reselling bitcoins for its own benefit, the government made it an asset that you could more legitimately purchase and sell. After all, if you can legally buy this asset from the government at an auction, this means legitimate corporations can also buy and sell such assets, not just shady startups or shady people or potential terrorists.

      On a side-note: It's not really true that taxes pay Judge Judy's salary, since she's making 47 millions this year for only 52 days of work. All that money comes from TV ads, not taxes. She's mostly an entertainer, not a normal judge, but her main point still remains regarding non-TV judges, most of those other judges get paid through taxes.

    7. Re:Nice by Anonymous Coward · · Score: 0

      Not really. I mean define currency. Bitcoin is more like a volatile asset, then a digital currency. Being readily convertible just makes it more liquid and actually makes it less of a currency and more of an asset. Noone recognises that something has value, the market decides. A steaming pile of shit could have value, but that doesn't make it a currency.

      Bitcoin is used for 1) speculation and 2) conversion into actual currencies (USD) - very few people want to hold bitcoin (other then speculators, such as Bitpay) - the market pretty much demands instant conversion into USD (which is why Bitpay is successful).

      No major retailers offer their goods priced in Bitcoin, they are always priced in USD (even though you can pay for them in Bitcoin). This creates an interesting situation because buyers literally do not care what the "exchage" rate is. In this sense the Bitcoin/USD exhange rate is meaningless, only specualtors care at all about it.

      This shows that bitcoin has no legitmacy as a currency.

  5. History by Falos · · Score: 1

    I hope this is provisional or whatever and they're not setting a precedent of "we can do whatever we want with seized shit", even though in this particular case it seems reasonable.

    1. Re:History by jythie · · Score: 1

      Actually this is pretty standard when dealing with non-cash assets that need to be transferred over to debt holders.

  6. Just a scam by The Man by Anonymous Coward · · Score: 0

    Trying to break down bitcoin so they won't have to worry about anything they can't control.

  7. Refund in cash? by ArcadeMan · · Score: 2

    The order also gives the receiver authorization to convert the bitcoins "to cash on a systematic and reasoned basis." The justification for this measure is at least to ostensibly create reserves with which refunds for Butterfly Labs' customers may be paid.

    If I had acquired my Bitcoins when they were worth over 800$USD, I would sure as hell prefer to be refunded in Bitcoins.

    --
    Get free satoshi (Bitcoin) and Dogecoins
    1. Re:Refund in cash? by Anonymous Coward · · Score: 1

      The order also gives the receiver authorization to convert the bitcoins "to cash on a systematic and reasoned basis." The justification for this measure is at least to ostensibly create reserves with which refunds for Butterfly Labs' customers may be paid.

      If I had acquired my Bitcoins when they were worth over 800$USD, I would sure as hell prefer to be refunded in Bitcoins.

      That makes no sense. You want to be refunded with an asset that is worth a fraction of what you paid for it? If it's cash, at least one could argue for suing for the old value of the coins, though you may not succeed or be able to collect. But by refunding in bitcoin you guarantee that outcome.

    2. Re:Refund in cash? by ArcadeMan · · Score: 1

      If they refund using the value of Bitcoins at the time of purchase, then fine. If they refund with today's value, I'd prefer Bitcoins, just in case in goes up again.

      --
      Get free satoshi (Bitcoin) and Dogecoins
    3. Re:Refund in cash? by rahvin112 · · Score: 2

      So take the cash and immediately purchase new bitcoins so it can go up again. The courts don't hand over businesses physical assets to investors, they sell everything then disburse the cash so there's no claim that someone got treated unfairly.

    4. Re:Refund in cash? by istartedi · · Score: 1

      Actually it makes plenty of sense. The choice of whether or not to realize a capital loss should be his. If he pays BTC and gets refunded in cash, that complicates matters. My understanding of how the IRS would treat this is hazy, as I'm neither a tax expert nor a BTC user; but it's not totally out to lunch. He may have to write down the loss when he really wasn't looking to do a tax-loss sale. Even if the tax issue were not in play, the decision of when to convert should be his.

      --
      For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
    5. Re:Refund in cash? by Anonymous Coward · · Score: 0

      Then you pay the fees and spread both ways, hurting victims even more. It would make more sense to refund whatever BFL was paid with, be it bitcoins, dollars, or gold coins. It's not like this is a difficult-to-divide asset.

    6. Re:Refund in cash? by Anonymous Coward · · Score: 0

      I suppose that if Butterfly Labs were holding euros that these would have to be "sold for cash" too.

    7. Re:Refund in cash? by Anonymous Coward · · Score: 0

      Nothing hazy about it since the IRS never accepted bitcoin as a currency but insist on taxing it as an asset like a penny stock or collectors item. ie they just silently convert the asset into it's value in cash at a given time and does the calculation based on those values. They also dont allow taxes to be paid in assets so you have to convert your bitcoins to currency in order to pay taxes on your bitcoin.

  8. Bullsh!t by Anonymous Coward · · Score: 0, Interesting

    All of the bitcoins that were mined during QA runs should be given to the owners of said devicii

    1. Re:Bullsh!t by Anonymous Coward · · Score: 0

      Bullsh!t indeed, WTF is devicii?

    2. Re:Bullsh!t by redback · · Score: 1

      devices is a perfectly good plural, dont reinvent the wheel.

  9. Of course, they wouldn't want to be refunded in by mark_reh · · Score: 1

    bitcoins!

  10. It is now time... by bobbied · · Score: 1

    To get rid of your BitCoin because you can bet the exchange rate will be trending down as they sell...

    --
    "File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
    1. Re:It is now time... by Anonymous Coward · · Score: 0

      and up we go!

    2. Re:It is now time... by Anonymous Coward · · Score: 0

      That was already the case with the far larger m:tgox and Silk Road liquidations, but Bitcoin market actors have the collective attention span of a goldfish, so the price just flounders up and down based on the top reddit story.

      The entire concept of "pricing into" doesn't exist in Bitcoin land.

  11. Fail on the FTC by Anonymous Coward · · Score: 0

    The FTC should have just stayed out of it and let the market decide.

    I'm sure word would have gotten around eventually about them.

    1. Re:Fail on the FTC by Ralph+Wiggam · · Score: 1

      Word got around a couple years ago. They told everyone to fuck off and kept their deposits.

    2. Re:Fail on the FTC by jythie · · Score: 1

      Enforcing contracts is part of the FTC's job. Butterfly labs took payment in exchange for goods and services they did not deliver, thus they are essentially holding on to assets they do not own. The market might decide future sales, but for past ones, the market does not really have a mechanism for that. This is where the legal framework comes into play. Someone steals your stuff, the state can get it back.

    3. Re:Fail on the FTC by Anonymous Coward · · Score: 1

      They literally stole money from people. If anything, they should face criminal penalties like a pickpocket would.

  12. What about the other bad actors? by Anonymous Coward · · Score: 0

    AMT, Bitmine.ch & Black Arrow both of whom have been discovered in their own forums to be in cahoots? FTC should be looking at those companies. At the very least AMT since it is the only US based company of the 3. Joshua Zipkin ripped off tons of customers and he gets a ton of crap in the bitcointalk.org forums. He even plotted to murder one of his critics in a skype chat.

  13. Too many bad actors by Anonymous Coward · · Score: 0

    There are alot of bad actors in this space. AMT, Black Arrow, etc. BFL just is most noteworthy and get all the press. IF the FTC did a sweep they could get the CEOs of the other companies, Joshua Zipkin being associated with AMT, that would be a good one to start with considering how badly he has incriminated himself on the forums.They want a slam dunk go after AMT.

  14. I have a serious question.... by Anonymous Coward · · Score: 0

    If all of these bitcoin mining companies are turning out questionable/unreliable: Where did the 100-300fold increase in bitcoin difficulty come from? I'm seeing like 300 terahashes now when it had barely broken 1-3 terahashes a few years ago.

    That seems to indicate a *LOT* of players have gained access to a lot of ASIC mining devices.

    Where did all these miners come from, and who is controlling them?

    1. Re:I have a serious question.... by Toasterboy · · Score: 2

      It's built into the design of bitcoin. It automatically adjusts the difficult of mining up (never down) based on the rate at which coins are mined in heats. Every time a faster ASIC for mining comes out, the difficulty shoots up correspondingly. At best you can mine a good percentage of the blocks in the current heat with a new machine before the difficulty shoots back up and the new ASIC performance is the new baseline The new asics are still better than the poor schmoes running regular cpus or gpus, but it's quite difficult to "get ahead" with mining unless your mining resources are free, such as harvesting cpu cycles form a botnet.. There are a finite number of bitcoins, and with every block of them found the difficulty to mine the next batch goes up very fast.

      I recently thought about getting some ASIC mining hardware, but after running the numbers and factoring the cost of electricity, and the current price of bitcoin, it was dubious whether the devices would even make back their cost even if they did ship on time and perform as advertised. Even just running mining software on cpus and gpus I already own is a losing proposition due to the cost of electricity. Not really a good investment, unless you're on unmetered power, such as college dorms.

      The way that that the mining difficulty cranks up with blocks returned, the developers of any new fast ASIC hardware will reap the greatest benefit of the faster hardware during development, and by the time you get it in your hands the bitcoin ecosystem will have already cranked up the difficulty. It will still be faster than older hardware, but since the difficulty cranked up too, it's likely going to produce much less than you initially expected.

    2. Re:I have a serious question.... by petermgreen · · Score: 1

      Despite the substantial presense of scammers it's clear that some ASICs have made it to customers.

      Also theres suspicion that the reason many ASIC devices were delayed until they were no longer profitable was because the makers were mining themselves rather than fulfilling orders.

      There have also been reports of some big bitcoin mining operatinons starting up, possiblly big enough to bypass the bullshit and get their own chips made.

      --
      note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
  15. Here is the way I see it. by Anonymous Coward · · Score: 0

    They took peoples money.
    Built miners.
    Tested them long as they could possibly get away with it.
    Shipped them once the difficulty became too much for the current gen.
    Repeat

    I'd bet they still have a ton of BC, but there is really no way to know for sure short of them telling. It's a shame so many people were fucked over because of greed..

    Captcha: drowned
    No captcha bot I don't think they deserve to die, but they do deserve some prison time.

  16. Mod Point Ponzi Scheme by Anonymous Coward · · Score: 0

    I'm sick and tired of people pulling these mod point pozi schemes. Posting what appears to be a valid and logical comment which is "insightful" to gain the appreciation of the mods but the reality is that no such comment exists. If you look closely all you've done is reoganize the words used in previous comments so that the people who read your comment think that it's informative, when it's not.

    Scams. Scams: everywhere.

    (Really though you're right).