At one point they made a large mining facility in the US, with contracts with the power company to use a certain amount of service. They paid in the millions of dollars for mining hardware and power installation for their own small substation, they then ran it for a few months until the power company cut them off for never paying the power bill which amounted to $350,000 USD[1]. This was responded to as "a billing dispute" [2].
From my own calculations this farm was never able to be profitable (it always used more in power than it mined), and never covered even a small portion of the hashrate they were supposed to own. At one point they posted a video from within it, filmed without sound and in such a way as to hide the fact that there was only one rack of miners.[3] Many promotional photos were posted of their "farm", but none of the hardware is actually plugged in for these photos, so it was probably reboxed and shipped to customers afterwards.[4]
The part not mentioned in the SEC complaint is where the CEO flees the US to Dubai, one of the people in Dubai he defrauded of $200,000 from wins a legal battle against him, and the US Government bails him back to the US.
[1]: http://www.scribd.com/doc/261395976/Mississippi-Power-vs-GAW...
[2]: https://www.cryptocoinsnews.com/wp-content/uploads/2015/04/1...
Yes, it does.
The upside of this is that none of them have been able to break the basic blockchain mechanism and profit from doing so. That's an impressive achievement in computer security. It's the reason that blockchain technology is now being looked at as a way to record transfers of high-value bonds and such.
Not really. Merkle trees aren't exactly new, and neither is the transaction signing mechanism used in Bitcoin. Bitcoin didn't achieve anything novel here.
The major new idea Bitcoin brought to the table was proof of work. However, Satoshi couldn't predict mining pools, which has led to the situation Bitcoin is essentially controlled by a small cabal of miners and core devs. This is not the decentralized system Satoshi envisioned.
In fact, there have been cases in the past where a single pool actually had >50% of mining power for short periods of time. Since ownership of pools is not exactly transparent, we have no way of knowing if any pool out there is currently at 50%, or if there are multiple pools colluding. The classic argument is that there is no incentive for a 50%+ miner to hurt the network, but then you're trusting a random pool owner with your money, which goes against everything that Bitcoin set out to do.
Moreover, a large pool has been known to game satoshi dice by including a double-spend in its next block if it lost, and thus denying the original transaction to go through. Other games like selfish mining can be played as well.
Your statement that Bitcoin remains unbroken is not really true. A double spend has been demonstrated during the first big fork (around version 0.8, if memory serves me). It was announced with proof on Bitcointalk. I guess hat since the guy was a white-hat, and returned the money, you're still technically correct in that he did not profit from it.
Bitcoin is also notoriously vulnerable to DDOS attacks. We had several big DDOS events this year with Bitcoin transactions being backed up for hours, even days. In one case a company was 'stress testing' the system by filling up the blocks with dust transactions, and in another an attacker found a way to very cheaply fill up blocks with certain types of transactions (sigops).
Finally, Bitcoin simply does not scale very well because it's a massively replicated system that records and distributes transactions to every node in the network. This does not scale in number of nodes (network diameter, end-to-end latency) or in number of transactions (bandwidth, blockchain size).
All in all, calling Bitcoin an impressive achievement in computer security is a bit of a stretch imho.
There is also another very general problem with selling/buying miners (beyond the general suspicion of bitcoin fraudsters): if you buy a money-printing device from someone, why on Earth would you trust them not to run the money-printing device for themselves? You'd think it only ever makes sense to sell obsolete or broken devices, never the real thing, so why would anyone want to buy any?
The businesses (technology providers vs the owner of a current mining machine) are a bit different. A technology provider might have the expertise to manufacture the rigs or run the datacenter. The "owner" (quotes because it might be on paper only) provides upfront capital, in exchange for future uncertain returns from mining (uncertain for a host of reasons including the uncertainties of mining success, uncertainties in the speed of depreciation, and uncertainties in the future price of Bitcoin). The technology provider may not want to take these risks - or be unable to provide the capital outlay.
This means there's potential value to both parties in making a trade.
(The question of whether the technology provider is reneging by running the machine for themselves is obviously a separate question)
What you are saying is generally true, I agree, but the case of (specifically) money-printing machines has the additional complication of having very misaligned incentives, encouraging fraud. For any good other than money (or bitcoin), the producer of machines won't be able to want to do much with them, as you say. Money is unusual in that regard because you don't need to "use" it to make money, which removes a high barrier that the machine maker would normally face.
So you don't want to "keep" the money-printing machine for yourself, the incentive is to sell it for the original price after printing some money with it that you keep for yourself. It doesn't guarantee fraud, merely misaligns incentives to encourage it.
Setting up such extreme incentives for fraud is such a terrible idea that I am surprised anybody made business with these companies.
A somewhat related, legal, phenomenon would be a payment service provider (e.g., Paypal, IIRC) keeping the payments for a bit longer than necessary to earn interest (by investing the money with varying degrees of risk) on somebody else's money while that money is in transit.
If only we had centuries of historical precedent to learn from and prevent these sort of mistakes.
What they did was, they sold shares in a Bitcoin mining operation corresponding to hashing power, and kept selling long after their actual mining equipment had sold out. They then used the revenue from those sales to buy Bitcoin on the open market, and misrepresent those purchased coins as newly-mined coins for withdrawals.
Seriously, how could they possibly have thought that would work out?