Court Strikes Down FTC Request for More Butterfly Labs Oversight

A US District Court has denied a request filed by the Federal Trade Commission (FTC) that would have seen Butterfly Labs continue to operate only in a limited capacity under court direction.

Butterfly Labs

will now be allowed to resume business, though it will need to report information about its revived operations periodically to the court. However, it will notably no longer need a court-appointed FTC receiver for the duration of its ongoing litigation.

The FTC receiver had previously been granted the ability to manage and administer the company's finances, among other responsibilities.

Judge Brian C Wimes found that evidence submitted by the FTC to be "insufficient" at demonstrating that Butterfly Labs was likely to continue violating the law, and therefore needed additional oversight. The prosecution had argued that the company was likely to continue to misrepresent facts about its mining equipment if allowed to interact directly with consumers.

The ruling states:

Butterfly Labs has been under court-appointed receivership since it was shutdown by the FTC this September.

The court found that the FTC was unable to prove its assertion that Butterfly Labs misrepresented delivery dates, thereby misleading customers.

Further, it indicated that while it was to some extent compelled by the claims brought against Butterfly Labs, this sentiment was not enough to grant the motion requested by the prosecution.

The court filing reads:

Also dismissed were the agency's allegations that Butterfly Labs overstated the profitability of its mining equipment. Such accusations were largely based on the fact that the company made available a mining profitability calculator on its Facebook page.

The filing concluded that allegations of disingenuous marketing, including one in which a company representative described its products as "money-making machines" on an online forum, were not widely disseminated or made systematically to customers.

The ruling went on to take a broader look at Butterfly Labs' advertising practices:

Perhaps most notably, Butterfly Labs assured the court that it will not revert back to its previous pre-order business model when it resumes operations.

Many bitcoin mining hardware companies, including Butterfly Labs, relied on the pre-order business models to develop their products, a system that found them collecting funds for units sometimes months before their release. The model came under criticism as companies in the sector failed to deliver on projected dates.

Judge Wimes explained:

Butterfly Labs proposed to voluntarily submit monthly reports that will document progress made on its commitments.

Court ruling image via Shutterstock

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