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An Anonymous Coward writes with news of an in-depth article at Ars Technica: Feds: Butterfly Labs mined bitcoins on customers’ boxes before shipping

On monday morning at 9:00am, lawyers from the Federal Trade Commission (FTC) will ask a judge in a Kansas City federal courtroom to impose a preliminary injunction on Butterfly Labs (BFL), the embattled Bitcoin miner manufacturer. This would extend the temporary restraining order set down earlier this month, leaving the company controlled by a court-appointed receiver.

For the last 15 months, Ars has followed BFL as it has gone from being a curious hardware startup in a nascent industry to becoming the target of a federal investigation.

The FTC believes the three named members of the company’s board of directors—Jody Drake (aka Darla Drake), Nasser Ghoseiri, and Sonny Vleisides—spent millions of dollars of corporate revenue on non-corporate expenses like saunas and guns, while leaving many customer orders either wholly unfulfilled or significantly delayed.

In a slew of new court documents filed Saturday, FTC lawyers allege for the first time that not only did BFL engage in deceptive practices, it specifically used customer-ordered machines to mine its own bitcoins before shipping the machines out. (BFL has specifically denied mining for its own benefit.) The FTC also claims that BFL had its employees mine for personal gain using machines that had been refused by their purchasers or that had been returned after having arrived too late to be worthwhile.