Topic: FTC: Butterfly Labs Held Back Shipments for Illicit Mining (Read 2877 times)

@TonyT "Was it like an abandoned lobster trap, sucking in new, hapless and unsuspecting lobster victims?  Or, did they (as I speculated in my post) have good low prices? "

Nobody knew (except BFL) how well (I use the term loosely) the preorders were going. Even after it became obvious that
there were too many orders to deliver ROI and that deliveries were delayed and that difficulty was going through the roof,
people still kept buying. Like the way people are still defending BFL.

Their monarch units were delayed much longer then "two weeks" as they have been for pre-sale for months prior to them starting to ship these miners, and the difficulty is more then 20x what it was when they first stared pre-selling them (and the difficulty goes up ~2x what the difficulty was when they were first offered for pre-sale every two weeks - at least as of 3 difficulty periods ago), and they have gone from most likely being able to ROI to 100% cerainly will never ROI unless the difficulty crashes

They took payment for preorders and customers were left waiting for over a year to receive miners that didn't perform to spec. Back then their unofficial slogan was 2 more weeks™ due to their constant delays and saying they'd be ready to ship in 2 more weeks. Their prices seemed good at the time considering that difficulty was low due to ASICs just being introduced, but by the time they were shipped, the difficulty had risen exponentially, thereby greatly reducing profits of those customer's ASICs.

Thanks bigasic, that is interesting.  Not to defend crooks, but if everybody knew they were doing this, why did they continue to order from them?  Was it like an abandoned lobster trap, sucking in new, hapless and unsuspecting lobster victims?  Or, did they (as I speculated in my post) have good low prices? 

Most everyone knew that they were doing this. The problem is that no one could prove it. Well, now, thats most likely been done, they will have a whole new batch of issues..

Let me be Devil's Advocate here.  I read the links, and it seems to me the following happened, as is common with startups (no I don't have any relationship with Butterfly Labs).

Seems Butterfly Labs was doing a form of channel stuffing in reverse, delaying shipment of GPUs so they could profit from them.  It's sort of like customer financing way back when people read newspapers.  The 'scam' went like this:  widget vendor puts an ad in the newspaper saying "Discounts of 15% for Widgets because we buy in bulk!  Don't delay, order today!".  Then a bunch of people order widgets.  The trick is that the vendor has no widgets, but if enough people sign up, the vendor can get widgets for a 25% discount from some wholesaler, ship them off to the waiting customers, and after expenses make about 25-15 = 10% profit.  But to pull this off the vendor has to stall on the customers waiting for their widgets.  Is this wrong, unethical, common business practice?  Yes it is.  Should the FTC put the company out of business?  No.  Because the company is providing a service, albeit slowly.  If the customers don't like it, they can tell their friends to boycott the vendor, or not shop there again.  The marketplace will sort it out, no need for the FTC. 

What's the harm then in the FTC shutting down such a business?  Well for one thing, it provides a valuable service if you think about it.  The vendor is giving buyers who are willing to wait (or rather, forced to wait) a 15% discount.  If it was not for the vendor collecting customers, this would never happen.  Likewise, for Butterfly Labs, maybe their GPU prices were a bit lower than their competition, since they used this hardware to make money before shipping it to customers, so they could afford to lower prices?  I don't know if that's the case, but it could be.  So again, let the marketplace, not the FTC, sort it out.

TonyT

It is implied that the mining was done to benefit the owners of BFL. I would not be surprised if the record keeping that they did was less then perfect. (I also suspect that they mined for "their own account" for a lot longer then the 2 days that is alleged in the complaint). If the record keeping was sloppy then they could have easily made it look like their pool was sending mined bitcoin to users of their pool when it really was going to themselves; this would make it easy to hide the ill gotten bitcoin.

If in the owners "personal" possession then both cash and bitcoin could easily be claimed to be the personal property of the owner an to have nothing to do with their ownership of BFL (this is especially true with bitcoin if they has utilized bitcoinfog or some other mixer)

I'd think it would be even safer if they just stashed BTC away, offline, and hid them all over.  No way anyone would be able to find them.

Cash on the other hand I think is much easier to find.

The price of bitcoin had fallen by several percentage points right around the time that BFL was supposedly getting raided. I wonder if they were trying to sell their bitcoin on exchanges (ether as BFL, or trying to hide their identity) right after this occurred.

Called that.  It doesn't even feel good. 

-D

I bet the BFL guys get out of this without too much damage i should imagine they have hidden many millions and when you are rich the laws dont apply as vigorously (see mark karpeles)  

Not really a big shock for anyone who has followed/been invested in the BFL scheme. We all knew that BFL was taking customer's money and using the purchased ASICs to mine on Zerlan's Eclipse pool. However, it is nice to finally see it substantiated. I wish nothing but the worst for these scam artists, and especially that blow-hard Josh Zerlan.

http://www.coindesk.com/ftc-butterfly-labs-held-back-shipments-illicit-mining/

The FTC alleges that Butterfly Labs was slow to complete the product of its mining units, and that when it did so, it conducted a process known informally as ‘burning in’ wherein equipment was tested and the bitcoins mined as a result were kept for company gain.

One former employee, the FTC said, suggested Butterfly Labs would conduct this process with 500 mining machines operating in three separate ‘burn-in rooms’, meaning as many as 1,500 were in operation in total. Another said that such testing went on for two days – a process that should have taken only 10–30 minutes.

Statements from at least one employee suggest that Butterfly Labs knowingly conducted this process to boost its bottom line. The document reads:

“One employee inquired with company management as to why they chose to test by mining rather than using the test-net, and was told that the company would not make any money using a test-net.”

The FTC claims that no Butterfly Labs customer ever received products on the shipping date originally advertised. In addition, despite the company’s claims that it provided a “full product shipment or refund” to customers who ordered between 9th August and 9th November 2013, Butterfly Labs has not provided supporting evidence to this claim.