FTC Denies Preliminary Injunction Against Bitcoin Mining Company Butterfly Labs (BFL)

December 13, 2014

The FTC proceedings against troubled Bitcoin mining company Butterfly Labs (BFL) continue. In a document submitted today, the Court revealed its decision to continue the case without granting a preliminary injunction against BFL. The Court has formally denied the Plaintiff’s request for a “preliminary injunction, asset freeze, appointment of a receiver, and other equitable relief.” Previous reports of the court proceedings in Kansas had revealed that the presiding Judge Wimes may be interested in allowing BFL to reopen. Butterfly Labs was first shut down at the end of September when the FTC case was revealed in September. BFL stands accused of engaging in “unfair or deceptive business practices in or affecting commerce.”

Also read: FTC Reports Butterfly Labs Mined on Customers’ Bitcoin Miners

Preliminary Injunction Against BFL Denied

Among other proven infractions, a former BFL customer service employee testified that it was “company policy” to tell querying customers that delivery was “two months” away. While those that just saw BFL’s self-posted delays were more used to the promise of “two weeks.” A different former BFL employee stated that delays were told to the customer service department when the public was told. The plaintiff also presented evidence in the form of internal communications that BFL was aware that a promised final testing phase was not going to be completed as soon as promised. However, on the point of BFL’s delivery date misrepresentations, the court decided:

The Court finds this evidence is still insufficient and does not establish that Plaintiff is likely to succeed in demonstrating the delivery date representations were false. This is particularly true when considered in light of Defendants’ evidence. Specifically, Defendants assert that the delivery dates were based on information from BFL’s vendors and suppliers and that BFL constantly updated its customers via its website on delays. […] After considering all of the evidence, the Court finds Plaintiff has not carried its preliminary injunction burden. Admittedly, the Court is troubled by some of the evidence.

Additionally, the court decided that the Plaintiff was unlikely to succeed in proving that BFL misrepresented the profitability of its “money-making machines.” While there is evidence that BFL specifically referenced its Bitcoin miners as “money-making machines” in a few forum posts, the current law precedent that is followed by the FTC requires that the plaintiff must show that the misrepresentation was “widely disseminated.” The Court countered with the defendant’s evidence:

Conversely, Defendants offered evidence that it has published more than 400 million ad impressions through Google that advertise hashing speeds and power efficiency of BFL products but do not mention profitability.

The Plaintiff also argued that “despite their statements, Defendants pose a realistic threat of recurrences in such activities based on their past pattern of conduct.” However, the Court does not find that BFL will go back to its pre-order ways, which it has abandoned since summer of 2014. The Court is ordering BFL to submit a written report on a monthly basis that will highlight BFL’s adherence to their stated reconciliation business plan. Their monthly report to the court will have to include updates on the status of manufacturing and shipping for the current queue, assessment of remaining pre-order refund liabilities, corporate governance progress, reaffirmation of a no-pre-order policy, status of chip testing, and key communications between the business and its customers. The Court has decided that these monthly reports will be sealed and undistributed.

The full text of the Court document can be found here.

Images from Shutterstock.