OVERLAND PARK, Kan. (AP) — A Kansas bitcoin company that was shut down after being sued by the federal government will be allowed to reopen under several restrictions, a federal judge has ruled.
Butterfly Labs, based in Overland Park, Kansas, was shut down in September after the Federal Trade Commission alleged that it defrauded up to 20,000 customers of between $20 million and $50 million for computer equipment it didn’t deliver. It was later allowed to resume limited operations under the control of a court-appointed receiver.
U.S. District Judge Brian Wimes last week rejected a government request for a preliminary injunction that would have kept Butterfly Labs under the receiver’s control while the original complaint was pursued. Wimes said the FTC has not shown that it was likely to succeed on the charges, The Kansas City Star reported (http://bit.ly/13tvO6X ).
“They’re going to be back in business,” said Michael Foster, an attorney representing Butterfly Labs. “The receivership is going away.”
FTC officials said in a statement that the agency would continue to investigate the company.
“We plan to continue our litigation in this matter and will move forward with this effort to protect consumers,” spokesman Jay Mayfield said in an email Monday.
Bitcoins are a virtual currency that can be used to buy and sell some goods and services without government-issued money. They are created by computers that are used to resolve complex algorithmic formulas. The FTC alleged in its lawsuit that Butterfly either did not deliver computers or its machines didn’t work and prevented customers from earning bitcoins.
Wimes ruled that Butterfly Labs cannot resume its practice of collecting payments months before the products were available. Company officials said previously in court that they had stopped using pre-paid orders last summer.
The judge also said Butterfly Labs must file monthly reports to the court on its business operations and financial results, and must inform the court about the status of its equipment testing and the bitcoin proceeds the tests generate.
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