WASHINGTON, Sept 23 (Reuters) - A U.S. court has shut down Butterfly Labs, a Missouri company the Federal Trade Commission alleges deceptively marketed computers designed to produce bitcoins, the “virtual currency” payment system.
The FTC’s complaint against Butterfly and its corporate officers alleges that the company charged consumers thousands of dollars for its bitcoin computers, called BitForce, but then failed to provide the computers until they were almost obsolete, or in many cases did not provide the computers at all.
Unlike traditional currency, bitcoins are not distributed by a central bank or backed by physical assets like gold, but instead are “mined” by users who use computers to calculate increasingly complex algorithmic formulas.
When a user solves a formula, the bitcoin system awards that user a set number of bitcoins. As time passes and more bitcoins are mined, mining becomes more difficult. The codes become more complex and require more powerful computers to solve them.
“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,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection.
Butterfly sold its computers from $149 to $29,899 based on the machines’ purported computing power. The FTC said that more than 20,000 consumers had not received the computers they purchases as of September 2013.
The defendants in the case are BF Labs, Inc, doing business as Butterfly Labs; Darla Drake; Nasser Ghoseiri and Sonny Vlesides, the FTC said. (Reporting by Ros Krasny)