Butterfly Labs Urges Court to Dismiss FTC's 'Self-Serving' Fraud Charges

Embattled mining hardware company Butterfly Labs has filed a court motion to dismiss a Federal Trade Commission complaint.

AccessTimeIconOct 24, 2014 at 2:26 p.m. UTC
Updated Sep 11, 2021 at 11:16 a.m. UTC

Embattled mining hardware company Butterfly Labs has filed a motion to dismiss a Federal Trade Commission (FTC) complaint against the company.

(BFL) was shut down by the FTC last month following numerous claims of public misrepresentation and downright fraud.

However, in spite of nearly 300 customer filings against the company, BFL still insists it is the victim of overzealous regulators and intends to resume limited operations in the near future.

The sentiment is evident in the opening remarks of the latest filing, in which the company alleges the FTC headed a "campaign to destroy" BFL, following an "ask questions later" script. The company says the FTC created a "legal morass" by selectively using "self-serving" evidence.

See the full legal document at the bottom of this article.

Evidence challenged

The filing challenges evidence used in the case and accuses the FTC of lacking even basic information about the company, thus "depriving the court of an accurate and factual background".

"Plaintiff could have learned (if it didn’t already know), for example ... that BF Labs voluntarily ended its preorder sales on July 17, 2014 (rendering much of the prospective relief sought by Plaintiff moot)," the company stated in the filing.

Other evidence is disputed as well, such certain customer complains, claims about the volume of BFL shipments, previous complaints filed against the company and the FTC's media claims about the company, in which Butterfly Labs was described as a "bogus company of scammers."

The company pointed to the FTC's own decisions as proof that such characterisations made no sense:

"The same day that Plaintiff issued its press release calling BFL a 'bogus' company of 'scammers,' two of Plaintiff’s attorneys held a Twitter-feed Q&A session about the BFL case. In that session, the attorneys stated that BFL took  'at least $20 million, and potentially up to $50 million' from customers, and stated that 'thousands of orders were placed, and thousands of consumers have complained about non-delivery.' Yet six days later, Plaintiff agreed to permit BF Labs, the 'operation' that Plaintiff proclaimed to the world (and this Court) had taken between $20 and $50 million from thousands of customers, to reopen for limited operations."

Delays 'have precedent'

BFL went on to note that its "anticipated shipping dates" were not a misrepresentation of the facts, because no reasonable bitcoin-mining consumer could have concluded that anticipated shipping date and product development representations made by the company were either material or misleading.

BFL argued that reasonable investors should have anticipated possible delays or unforeseen product developments, citing several precedents involving tech companies. The company maintained that it merely disclosed the status of products under development and that its "shipping date and product development representations were immaterial and not misleading as a matter of law".

BFL went on to list a number of revisions, updates and blog posts in which it communicated the delays to its customers and the general public.

The company also criticised the FTC's decision to cite the use of a third-party bitcoin calculator on the BFL site, as the FTC failed to note that the output of the calculator was dependant on the value of bitcoin and the shipping date.

In its conclusion, the BFL legal team requests that the court "dismiss the complaint in its entirety and with prejudice".

Court documents image via Shutterstock


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