Butterfly Labs and two of its operators have agreed to settle Federal Trade Commission charges that they deceived thousands of consumers about the availability, profitability, and newness of machines designed to mine the virtual currency known as Bitcoin, and that they unfairly kept consumers’ up-front payments despite failing to deliver the machines as promised.

Under the terms of the settlements, Butterfly Labs and its part-owner and vice president of product development, Sonny Vleisides, and its general manager, Darla Drake, will be prohibited from misrepresenting to consumers whether a product or service can be used to generate Bitcoins or any other virtual currency, on what date a consumer will receive the product or service, and whether the product is new or used. The settlements also include monetary judgments that are partially suspended due to the defendants’ inability to pay.

“Even in the fast-moving world of virtual currencies like Bitcoin, companies can’t deceive people about their products,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “These settlements will prevent the defendants from misleading consumers.”

The FTC’s complaint against the company and its corporate officers alleged that Butterfly Labs charged consumers thousands of dollars for its Bitcoin mining machines, but then failed to deliver the computers until they were practically useless, or in many cases, did not provide the computers at all. The settlements also resolve charges that the defendants failed to disclose that they were using the machines for themselves before delivering them, and that they kept consumers’ up-front payments even after failing to deliver machines as promised.

In addition to prohibiting the defendants from making any misleading claims about their products, the company and Vleisides will also be prohibited from taking up-front payments for Bitcoin machines and other products used to mine for any virtual currency unless those products are available and will be delivered within 30 days. If the product is not actually delivered within 30 days, the defendants must provide a refund.

Both settlement orders in the case require the defendants to provide consumers with prompt refunds if they sell a damaged or defective product, and require defendants to obtain a consumer’s permission before delivering a product late.

The orders also include partially suspended monetary judgments. Against Butterfly Labs and Vleisides, the judgment is $38,615,161, which will be suspended upon Butterfly Labs’ payment of $15,000, and Vleisides’ payment of $4,000. Against Drake, the judgment is $135,878, which will be suspended once she surrenders the cash value of all Bitcoins she obtained using company machines. The judgments were suspended based on the defendants’ inability to pay, but will become due should the defendants be found to have misrepresented their financial condition.

The Commission vote approving the stipulated final orders was 4-0. The FTC filed the proposed orders in the U.S. District Court for the Western District of Missouri.

NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.

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