Feds say Bitcoin miner maker Butterfly Labs ran systematic deception

Sonny Vleisides (right), is Butterfly Labs' co-founder and largest shareholder. A federal judge told him in January 2014 that there was a "strong smell" of fraud with respect to his company.

Federal authorities believethat the three named members of the companys board of directorsJody Drake (aka Darla Drake), Nasser Ghoseiri, and Sonny Vleisidesspent millions of corporate revenue on all kinds of things, including saunas and guns, while ignoring many customer orders that went unfulfilled or were significantly delayed.

The case was filed in federal court last week in Missouri (but unsealed late Monday), and it comes over a year after Ars firstreportedon the company and began testing its initial round of specialized computers designed to do nothing but mine for Bitcoin.

"The FTC alleges that one corporate defendants and three individual defendants have taken in over $50 million by operating a scheme that required consumers to pre-pay for machines that would allow consumers to mine for Bitcoins, a new virtual currency," the complaint states. "Defendants either never delivered these machines or delivered them so late that they became obsolete."

No one from BFL, including the three named defendants, responded to Ars repeated requests for comment by phone, e-mail, and Skype.

Unsubstantiated rumors on the Bitcointalk.org forums stated that BFLs offices in Leawood, Kansas (just outside Kansas City) were "raided" by the United States Marshals Service last Friday.

Nikki Credic-Barrett, a spokeswoman for the USMS, told Ars on Monday that one of her colleagues from the Western District of Missouri, whom she declined to name, said that the USMS was "present at this location on that day."

"Anything concerned with what happened is under seal," she said. "That's the most he could tell me."

For the past year, BFL insisted that mere manufacturing delays were to blame for the company's woes. However, suspicion of active fraud never died down. In fact, it's gotten worse after it came to light that Butterfly Labs' largest shareholder, Sonny Vleisides, violated the terms of his probation in a previous lottery scam casewhere he took a plea deal. As a result, Vleisides probationpreviously slated to end in September 2013continued for another two years.

The judge who extended Vleisides probation gave some damning comments about Butterfly Labs in a January 2014 court hearing:

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Feds say Bitcoin miner maker Butterfly Labs ran systematic deception