Mining hardware maker Butterfly Labs has been shut down by the US Federal Trade Commission (FTC), which accused the embattled company of fraud and public misrepresentation.

On 18th September, the agency was granted permission by the US District Court for the Western District of Missouri to freeze Butterfly Labs’ assets and close the company pending trial, according to documents released by the FTC.

The move comes months after customers began sending complaints to the federal agency, a process that produced nearly 300 filings accusing the company of delaying shipments and refund payments.

Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said that the focus is now on seeking restitution for Butterfly Labs customers, adding:

“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.”

‘Threat to public interest’

The FTC filing centered primarily on Butterfly Labs’ continued stonewalling of customers who did not receive mining products after the company announced that they had been shipped. It noted that during the last two years, Butterfly Labs consistently failed to deliver products or services that had been paid for upfront, including cloud mining contracts.

According to the agency, Butterfly Labs violated Section 5(a) of the FTC Act by engaging in “unfair or deceptive business practices in or affecting commerce”. The FTC said that in both its direct sales pitches and in all advertising materials, the company misled consumers on its ability to provide a legitimate service.

Combined, the agency wrote in its filing, these actions constitute a threat to consumer safety, justifying the closure of the company and the seizure of its assets.

The FTC said:

“Consumers have suffered and will continue to suffer substantial injury as a result of Defendant’s violations of the FTC Act. In addition, Defendants have been unjustly enriched as a result of their unlawful acts or practices. Absent injunctive relief by this Court, Defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest.”

The agency requested that Butterfly Labs be placed in receivership and its operations be suspended in order to cease all activity.

See the full court document below:

FTC Complaint

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