SAN FRANCISCO—Seated at a conference table in HashFast's offices, flanked by four other top employees, CEO Eduardo deCastro explained on Friday morning that the now-former Bitcoin miner manufacturer made key mistakes in late 2013 that lead to the company’s precarious position.

"We pretty much emptied the bank account into refunds,” he admitted.

But as far as many customers are concerned, those refunds are not happening fast enough. Delayed orders led to escalating frustrations, which in some instances led to lawsuits and arbitration cases, with likely more on the way.

Ars’ recent story chronicled the five arbitration cases and two lawsuits that HashFast has pending against it. Many customers have accused the firm of outright fraud, and some are upset that when the company failed to fulfill its orders, it refused to refund the amount in bitcoins as it had previously promised.

Last Thursday, HashFast hired a new CFO, fired half of its staff, and decided that it’s now only going to sell ASIC Bitcoin-mining chips rather than make or sell complete boards.

Up until that decision, the startup had been manufacturing and selling specialized boards equipped with chips designed specifically to compute hashes in the Bitcoin blockchain as a way to generate, or “mine,” new bitcoins. Hashfast's original “Baby Jet” machine (a fully assembled box) was designed to perform at 400 gigahashes per second (GH/s).

At the Friday meeting, deCastro talked up the company’s sole product at the moment: the “Golden Nonce” chips, which Simon Barber, the company’s CTO, claims can reach as high as 800 GH/s given “specialist cooling” conditions. The CEO now wants the company to become the “Intel of the ASIC world.”

"The only thing that is holding us back is that we are as poor as church mice,” deCastro continued. “We are cash poor and inventory rich. We have lots of inventory and no cash."

Joe Russell, the senior accounts manager, later told Ars that the company has a current stock of “tens of thousands” of chips on hand.

The company’s new CFO, Monica Hushen—who mostly stayed quiet during the hour-long interview—noted that this narrow focus may not always be the situation.

“That's not to say that our strategy might change in the future, but it’s the only one that makes sense right now,” she said. “We're being very pragmatic with respect to the customer.”

HashFast’s struggles add to the ever-increasing list of legal cases involving apparent Bitcoin-fueled fraud: The Bitcoin Savings and Trust hedge fund collapse; the high-profile Silk Road takedown; and most recently, the implosion of Mt. Gox, once the currency's largest exchange.

Later on Friday, HashFast announced a partnership with Pepper Mining, a company that is selling a $1,100 “Habanero” mining board designed to work with the Golden Nonce chip.

Strangely, Pepper Mining’s website lacks any identifiable contact information, nor any clear details as to who is behind that company. Its three staffers are only named as “Mr. Teal,” “Chipgeek,” and “Gateway”—their pictures are South Park-style avatars.

Russell also told Ars that Pepper Mining is based in Novato, California, about 30 miles north of San Francisco. But the company website lists no address or phone number, its whois data is obscured, and a search of California business records turns up no company by that name. Mr. Teal’s bio says that he is an “Electrical Engineer based in Canada.”

HashFast’s new relationship with a company that seemingly wants to obscure its origins does not exactly engender confidence.

Hindsight is 20/20

So what were HashFast's key mistakes? The first, both the CEO and CTO agreed, was hiring a board designer who was less than satisfactory.

“We just hired a contractor we shouldn't have hired,” deCastro said. “The [silicon] wafers came in the tail end of October 2013. Should everything else have been ready, we could have [shipped on time]. We could have hit the beginning of October, if we had a board to land on, but we didn't. We aced the difficult part of the test.”

In an attempt to stop the bleeding, HashFast temporarily halted all sales at the end of December 2013. As customer exasperation mounted and the lawsuits and arbitration cases began, deCastro said that the firm’s lawyers advised them to not say anything publicly.

“Both were strategic mistakes—stopping selling and not talking,” he said.

“We should have been communicating this a heck of a lot more—this kind of info should have gone out. We erred on the side of listening to our counsel. We do [still listen] but we are listening less to them.”

In California, HashFast is represented by Jeremy James Frederick Gray of Zuber Lawler & Del Duca LLP and in Texas it's represented by John D Penn of Perkins Coie LLP. Neither attorney has responded to Ars’ repeated requests for comment.

On top of the companies own self-inflicted wounds, there were two other events that threw HashFast for a loop.

In Fall 2013, HashFast had a customer who had placed a “huge order”—they declined to name the client nor the total purchase price—but that customer backed out. Why? HashFast apparently couldn’t order a large enough quantity of the component parts to fulfill the order, and the big-spending customer withdrew.

“Our whole financial plan was [now] based on how the money was going to come in,” Barber said.

On top of it all, there was an act of God, too. deCastro experienced a massive electrical fire in his house due to a faulty electrical device charger.

“I had burns, smoke inhalation, and everything I owned burned,” he said, lamenting the fact that one of his dogs died in the blaze. One of his housemates was apparently in the hospital for three months as a result. “I barely managed to get out.”

With deCastro out of commission for a little while, Barber said he was put in charge of “business stuff,” while his normal area of expertise is engineering.

“This distracted me, I should have been supervising these [board] contractors more closely,” he admitted.

Defending lawsuits costs money

Company executives declined to provide any clear indication as to how many individual refunds have been issued, nor the total value of those refunds. Some customers have accepted refunds in US dollars, and others have accepted a “conversion” of their order into pure chips totaling more hashing power than what they had originally ordered.

One of the primary sticking points among angry customers is the fact that in August 2013, CTO Simon Barber stated publicly on the BitcoinTalk.org forum: “Orders are taken in BTC, in the unlikely event we get to refunds they will be given in BTC.”

The company further said it would ship its Baby Jet ASIC Bitcoin miner by October 2013—which was then delayed until January 2014. By late April 2014, Barber, along with the company’s CEO Eduardo deCastro, issued an “apology to our customers.”

Now though, the company says that what it really meant was that while it was accepting payment in bitcoins at the time, it was then immediately converting that amount to US dollars. After all, its products were priced in US dollars, not bitcoins. Therefore, company execs argue, it stands to reason that refunds should only be issued based on the dollar amount that was paid at the time, or the present-day bitcoin equivalent—and not the original purchase date amount of bitcoins paid.

As more time goes by, bitcoins become harder to mine, which means that miners are worth less and less. With bitcoins trading currently at around $450 (down from a high of nearly $1,200 in December 2013), HashFast’s customers are clearly losing money. Were customers to be refunded in the amount of bitcoins they originally paid, they would have easily quadrupled their initial investment.

In fact, Bitcoin’s ever-increasing mining difficulty is exactly why the company says that it needed to take pre-orders in the first place—to garner enough cash to pay its suppliers, and itself.

“If we had spent many months rescheduling to get venture capital [the business] wouldn’t have worked,” Barber said later, during an office tour.

The chief executive also said that early on, HashFast refunded customers some amount of US dollars once it found that it could reduce shipping costs.

“We weren’t profiting in any way,” he said. “Every last one was in US dollars, nobody said boo. All those folks had nothing to say about this when we refunded them in US dollars. All of this only started when Bitcoin went up. It’s going to cost those people money, it’s costing us money and attention and it’s distracting us from our business.”

Books stay closed

Still, the company says it wants to do right by its customers.

“We’ve been going through the list of people who are undelivered,” Simon Barber, the company’s CTO said. “We have lots of chips on hand. If you want us to deliver something, we can deliver for you significantly more hashing power than you originally signed up to purchase, in the form of chips. It’s a deal almost everyone takes.”

“We’re working through [refunds] as soon as we get them in,” deCastro said. “We get profits, we process them as refunds.”

Barber chimed in: “Some money goes into producing stuff, and some of the cash flow goes into issuing refunds.”

“And legal issues,” deCastro noted dryly.

As far as refunds are concerned, the company says that it’s well on its way to finally resolving all of the lingering order and refund issues.

“We sold in multiple batches,” deCastro explained. “Batch 1 is complete except for a few refunds pending and the ones who are suing us.”

Amy Abascal, company’s director of marketing, who also attended the Friday meeting, said that Batch 2 shipments were complete except for an “upgrade kit for the Baby Jet which there are still some outstanding.”

Of course, such statements remain impossible to verify. Similarly, it’s impossible to know precisely what financial shape the company is in, nor how the company has been structured, nor who its shareholders or investors are.

"We're not going to deal with financials—it's not appropriate,” CFO Monica Hushen said during the meeting. “We can't comment on corporate structure.”

She did say though, that the company’s intellectual property was held by a Delaware corporation, HashFast LLC, which in turn owns HashFast Technologies, a California corporation—lawsuits have been filed against both entities.

So much for “conversions”

These “conversions” of customers being compensated in chips (as a way to mitigate the order delays) seem very similar to the company’s previous “Miner Protection Program,” (MPP) which was initially given as a gift to early customers, and then later was offered for purchase.

Abascal told Ars later by e-mail that these two setups—the original MPP, and the new conversion program—“are different things.”

HashFast describes the MPP program this way:

At HashFast, we understand that healthy, prosperous customers make for a healthy and prosperous company. We know that our customers are concerned about the rapid growth of the network hashrate – and we stand by our customers. We designed our silicon so efficiently per square mm, that we are able offer you this protection. If the Bitcoin network hashrate increases so that your Baby Jet doesn’t generate more Bitcoins in ninety days than you paid for it, HashFast will give you additional ASICs. In fact, we will give you up to 400% more hashing capacity than the Baby Jet you purchased. Yes, that does mean that if you don’t make your money back in 90 days, we will increase your mining capacity to up to 2 Terahashes!

One customer, Edward Hammond, wrote to Ars to say that he was part of the Batch 1 purchase group and was in on the MPP promise.

“In other words, for every Batch 1 Baby Jet shipped (assuming the customer didn't cancel or sign a release form), Hashfast is overdue providing an additional 1.6 terahashes (the MPP calculation period ended at the end of January),” he told Ars. “This also applies to some Batch 2 customers, those that paid for the add-on. Personally, my order was for one Batch 1 BabyJet (which arrived way late). I am still waiting for the MPP on that.”

Hammond also told Ars that he ordered a Baby Jet upgrade card, which has still not arrived yet.

“I tried to refund the upgrade card, which at this point is a big money loser for customers (it cost $1500 and will never remotely pay for itself), but Hashfast insisted that I sign a release that would have let them off the hook for ‘any and all claims’ against them, i.e. including the obligation to provide the MPP. So I refused their release. They didn't refund.”

Another customer, Dan McArdle, relayed a similar story by e-mail.

He said that he was HashFast’s eighth customer ever, placing an order for a Baby Jet on August 8, 2013 for the price of around 59 bitcoins. Again, as more time goes by, bitcoins become harder to mine, which means that miners are worth less and less.

“In January 2014, with still no delivery, and having gone past their absolute drop-dead delivery timeframe of December 31, 2013, I started thinking about a refund,” McArdle told Ars. “Obviously I wanted my bitcoin refunded (worth about $50,000 at the time). HF stated they would only issue dollar refunds and that their prior statements about ‘full refunds in bitcoin’ just meant the dollar equivalent purchase price converted to bitcoin and refunded as bitcoin. Whatever the original intent, they had a huge communication failure, plus their horrible customer service, lack of any helpful information, excessive delays, and continual touting of their ‘amazing’ products, were simply disrespectful and infuriating.”

McArdle said he repeatedly e-mailed HashFast executives, including CTO Simon Barber, also about his MPP delivery.

“They did, however, leak a bunch of info to me during these e-mail exchanges (misdirected emails and support ticket responses). This included Peter Morici's FedEx shipping info (ie, name/phone/home-address) as well as engineering info about how HashFast was having difficulty getting their first units working, as well as assembly line issues.”

Following similar frustrations, Morici filed his lawsuit against HashFast in federal court in San Francisco in January 2014.

“So obviously that spooked me and I requested a refund, formally, with a certified letter, and an e-mail,” McArdle continued. “They confirmed receipt of my refund request via e-mail. A few days later, now early February (while I was traveling), I got a FedEx notification for a package from HashFast. Obviously this was unexpected, given my confirmed refund request, but the geek in me couldn't resist, so I accepted the shipment instead of refusing the package to keep my refund claim.”

“I was the 8th order, so this was a very early Baby Jet. It came pretty beat-up, broken chassis, screws completely loose and rattling around in the case. But it worked. It barely hit advertised specs, but it's still running to this day.”

“I'm still waiting for delivery of the ‘protection plan’ (MPP) chips. They should've shipped in early February, and they devalue by 50 percent every month, given the hashrate increase of the network as a whole. Bottom line: I'm now looking at a [return on investment] loss even in dollar terms, and I was one of the lucky ones who actually received a working unit relatively early. Every Hashfast customer is essentially a victim of their over-confident promises, lack of communication, and ultimate disrespect.”

When Ars relayed some of these comments to HashFast late Friday afternoon, Amy Abascal, the chief marketing officer, did not have an immediate response.