IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI WESTERN DIVISION FEDERAL TRADE COMMISSION, Plaime Let ; -vs- 4:14-CV00815-BCW BF LABS, INC,. et al., Defendants. THE DEPOSITION OF JOSH ZERLAN, produced, sworn and examined on the part of the Plaintiff, pursuant to Notice on Thursday, September 25, 2014, at the law offices of United States Attorney General's Office, Charles Evan Whittaker Courthouse, 400 E. 9th Street, Suite 5510, in the City of Kansas City, County of Jackson and State of Missouri, before me, BRENDA FITZGERALD, CCR No. 520 of JOHN M. BOWEN & ASSOCIATES a Certified Court Reporter, in a certain cause now pending IN THE UNITED STATES DISTRICT COURT, FOR THE WESTERN DISTRICT OF MISSOURI, WESTERN DIVISION, wherein FEDERAL TRADE COMMISSION is Plaintiff and BF LABS, INC,. et al., are Defendants. APPEARANCE S: For Plaintiff: FEDERAL TRADE COMMISSION 600 Pennsylavnia Avenue, N.W. Mailstop CC-10232 Washington, DC 20580 By: Ms. Malini Mithal UNITED STATES ATTORNEY'S OFFICE Charles Evan Whittaker Courthouse 400 E. 9th Street Kansas City, Missouri 64106 By: Mr. Charles Thomas Case 4:14-cv-00815-BCW Document 42-19 Filed 09/27/14 Page 1 of 40 APPEARANCES (Cont 'd) For Defendants: KENNYHERTZ PERRY 420 Nichols Road Suite 207 Kansas City, Missouri 64112 By: Mr. Braden M. Perry braden@kennyhertzperry.com For Receiver: SPENCER FANE BRITT & BROWNE 1000 Walnut Suite 1400 Kansas City, Missouri 64106 By: Mr. Carlos H. Marin cmarin@spencerfane.com Present: Mr. Eric L. Johnson, Receiver KKK INDEX Direct Examination by Ms. Mithal Cross-Examination by Mr. Johnson kK BZA HIT Bi'T LNDSB Ss Deposition Exhibit No. No. 1 - Not identified No. 2 - Attachment AAJ No. 3 - Not identified (Exhibit attached. ) Case 4:14-cv-00815-BCW Document 42-19 Filed 09/27/14 Page 2 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT (WHEREUPON, DEPOSITION EXHIBIT NOS. 1 THROUGH 3 WERE MARKED FOR IDENTIFICATION. ) MS. MITHAL: This is the deposition of Josh Zerlan in the matter of FTC versus Butterfly Labs, Inc., Case No. 4-CV-815 WBCW, pending in the Western District of Missouri. My name is Malini Mithal and I'm appearing on behalf of the plaintiff, Federal Trade Commission. Also with me is Peter Lamberton appearing on behalf of the plaintiff, the Federal Trade Commission. I'll let the others present identify themselves. THE WITNESS: My name is Josh Zerlan with Butterfly Labs. MR. PERRY: Braden Perry on behalf of the defendant. MR. MARIN: Carlos Marin on behalf of the receiver. JOSH ZERLAN, a witness, having been first duly sworn, testified upon his oath as follows: DIRECT EXAMINATION BY MS. MITHAL: Q Okay, Mr. Zerlan, are you represented by an John M. Bowen & Associates 911 Main Street, Suite 19 30 Page: 3 (816) Gage $764-cv-00815-BCW Dagumantiae ae galled 09/27/14 Page 3 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT a attorney? 2 A Yes, I am. 3 Q And who is that? 4 A Braden Perry. 5 Q And Mr. Perry is in the room with you today; 6 correct? 7 A Yes, he is. 8 Q Okay, and have you ever been deposed before? 3 A Yes. 10 Q How many times? id A Once. 12 Q And in what case was that? 13 A It was in a case involving web hosting. 14 Q And when was that? 15 A Many years ago. I don't recall the exact year. 16 Q Okay, and what was the subject matter of that Lz case? 18 A They were -- it was the MCA takedown notice. 19 Okay, so I understand that you've been deposed 20 before but I just want to lay out some ground 21 rules anyway given that it was a number of years 22 ago, and I want to make sure that we are on the 23 same page as we proceed through this deposition. 24 So I will be asking you a series of 25 questions. It is very important that we do not John M. Bowen & Associates 911 Main Street, Suite 1930 (816) 4394744-cv-00815-BCW DaeumentAen® dailed 09/27/14 Page 4 of 40 Page: 4 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT speak over each other so that the reporter can accurately transcribe the questions and answers and please make sure that you verbalize all answers. Try not to nod or gesture. Do you understand? Yes, I do. And if you do not hear a question, please say so and I will repeat it. Do you understand that? Yes. Great. And if you do not understand a question, please say so and I will repeat it. Do you understand that? Yes, I do. If you answer a question I will assume that you have heard it, understood it and have given me your best recollection. Do you understand that? Yes. Is there any reason why you cannot testify truthfully and accurately as to all of my questions today? No, there is not. And do you understand that your testimony today is under oath? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 5 (816)4as24764-cv-00815-BCW Ddeusertin2 MO 48a 09/27/14 Page 5 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Yes, I do. And do you understand that false testimony during this deposition may subject you to perjury charges? Yes, I do. Okay, and do you understand that you are to testify today as if you were in a courtroom before a judge even though we are conducting the deposition via telephone? Yes, I do. Okay, and so that later during a break if the other room frees up we might switch to video conference so I'm just letting you know that as well, Mr. Zerlan. That's fine. Okay, are you sick today? I'm sorry? Are you sick today? Am I sick? Yes. Are you sick? No, I'm not sick today. 0 Fr Oo PrP Oo FP OO Pp Okay, are you taking any medication that would interfere with your ability to testify truthfully and accurately? NG, Lm net. John M. Bowen & Associates 1 Main Street, Suite 1930 Page: 6 (816) GaB69 $464 cv-00815-BCW Bacurauentiao nie egg 09/27/14 Page 6 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT So please state and spell your full name. A Joshua, J-O-S-H-U-A, Ryan, R-Y-A-N, Zerlan, Z-B-R-L-A-N. Q Have you used or do you use any other names or aliases? A Just Josh. Q What is your date of birth? A Q And where were you born? A Q And what is your Social Security number? A Q Do you have any additional Social Security numbers? A Q Do you have a driver's license? A I do. Q From which state? A Q And do you have your driver's license with you here today? A LT do. Please read into the record your driver's license number? A The number is John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 7 (816)@8$e28704-cv-00815-BCW DoGempent4z-MD ISG 09/27/14 Page 7 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 25 od 0 Fr OU Fr OO FF VO 0 Fr O P ROUGH DRAFT Do you hold any other driver's licenses? Lao HOt. Do you hold a U.S. passport? IL. do. Do you hold any other passports? i wdo: Ot.. Have you traveled outside of the United States in the past five years? Yes, I have. Where was that? Many countries. Okay. Can you tell me the countries in the last two or three years, let's do three years? India, DPRK, the UK, Germany, Slovenia, Argentina, Mexico. There are more. They are alluding me at the moment though. Are there any additional ones in the last year? Yeah -- not off the top of my head. Okay, and what was the purpose of those trips? Primarily was business for Butterfly Labs. And what type of business? Speaking at conferences. What is your present residence address? How long have you been living at that address? John Me (816) 421- N ~ 8 No ws cere ey 6 mF. ARISES. BCW Bobiitehe sete vid Be/27/14 Page 8 of 40 Page: 8 Kansas City, M Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT And where did you live before then? Do you have any plans to move in the next year or so? [IL do not: And how long did you live at your prior address? Okay. Do you use any E-mail addresses? I do. What E-mail addresses do you use? Josh@butterflylabs.com, @cowmail.org, @gmail.com and those are the primary ones I use. I don't recall if I have others, which I do have, but I don't know what they are. Have you used any of the other ones in the last six months? Not to my knowledge. In the last year? Not to my knowledge. And I know you mentioned a cowmail address. Do you just have one cowmail address, Mr. Zerlan? It actually is a catch-all address on any E-mail addressed to the cowmail domain goes to my Josh at John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 9 (816)4ah297/44-cv-00815-BCW DdttntrertHa NO “ie 09/27/14 Page 9 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 Q A Q A Q A Q A Q A Q ROUGH DRAFT cowmail dot organize. Okay. What is your cell phone number? And do you have any other cell or telephone numbers? Okay. And are you married? Okay, what is the name of your spouse? And how long have you been married? And what is your spouse's birthday? And have you been married before then? And what was that -- what was your former spouse name? And what is her date of birth? Do you have any children? Okay, are you employed at Butterfly Labs, Inc.? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 10 (816042628 1%-cv-00815-BCW Dokifantay- MO PHECPO9/27/14 Page 10 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT I am. And what is your title? VP of product development. How long have you had that title? Approximately two years. And did you have any position with the company before that or during that time as well? I did not. And can you describe your duties and responsibilities? The design and planning of future products, the modification or possible changes to current products, some customer and community liaison, speaking at conferences either on behalf of Butterfly Labs or on bit coin, unrelated to Butterfly Labs, and speaking at our booth to potential customers or people who have questions. Okay, and can you describe your compensation? Can you elaborate on that question? Yes. How much income have you received from the company over the last five years? Over the last five years, I don't know what the aggregate amount would be. I receive, I think, around $53,000 a year before taxes. Okay, and do you receive any other benefits from John M. Bowen & socia tes 911 Main Street, Suite 1930 Page: 11 (816, aSR AH cv-00815-BCW Dogumant43- Ao GHeg509/27/14 Page 11 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT the company? I'm supposed to receive hardware for -- in addition to my compensation. And what kind of hardware? Mining hardware. MR. PERRY: You know, I'm sorry to interrupt. It's about time that Charles and I go talk to the judge for a couple of minutes and I apologize. I was hoping to get through kind of background and that information. Can we take a break and we'll give you a call back when that conference with the judge is over, please? MS. MITHAL: That sounds great. MR. THOMAS: Should we -- we should call the 326-2972 number when we're done? MS. MITHAL: That sounds great. (NOON RECESS. ) MS. MITHAL: So this is Malini Mithal with the Federal Trade Commission. MR. LAMBERTON: Peter Lamberton with the the FIC. MS. MITHAL: Can everybody who is in the room over there identify themselves, please, starting with Mr. Zerlan. John M. Bowen & Associates 911 Main Street, Suite 193 Page: 12 (316 -ase rat cv-00815-BCW DogumEentte- 190 Ealags 09/27/14 Page 12 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT THE WITNESS: This is Josh Zerlan of Butterfly Labs. MR. PERRY: Braden Perry for Butterfly Labs, Sonny Vlesiedes and Jody Drake. MR. LAMER: Bryant Lamer, counsel for the receiver, Eric Johnson. MR. THOMAS: Charles Thomas with the U.S. attorney's office. MS. MITHAL: So, Mr. Zerlan, I just want to say do we need to do the oath again, maybe the court reporter should do that? MR. PERRY: I assume that he's still under oath. (By Ms. Mithal) Okay, great. So, Mr. Zerlan, the same thing, same ground rules we talked about this morning obviously still apply. I don't know if you have any questions or do you understand that? I do understand. Okay. So then let's just resume. One more background question I wanted to ask you or maybe a couple of more. Did you tell me what your highest degree of education is? Associate's degree. Okay, and from where? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 13 (816048 281-cv-00815-BCW Dokafantaty.- M0 fb0h09/27/14 Page 13 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Johnson County Community College. And do you have a particular technical expertise? I do, computer information systems and computer science. Okay, so before the break we were talking about your compensation and you said that you were supposed to receive hardware from the company. So what type of hardware were you supposed to receive from the company? Mining hardware. And were there specific mining products that you were supposed to receive? No. So could you just describe what the compensation structure was related to mining hardware? $30,000 worth of mining hardware. Per year? Per year, yes. And did you receive any of that? I received one set of that. And what was the hardware you received? Mining hardware. And was there a particular name of the hardware? The Butterfly Lab Single. 0 PrP oO Fr Oo FP oO PP OO P And was this able to mine for bit coin? John M. Bowen & Associat 911 Main Street, Suite 193 Page: 14 I aSP MG CVUORIEECW Dogunenicy Molgled0%27/14 Page 14 0f 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Yes, it was. And did you use it to generate bit coins? i did: And when did you receive it? I don't specifically recall. And you had said that you worked for the company for two years; is that correct? Yes. And so were you supposed to receive another piece of mining hardware? Yes. And when has happened with that? We have not had hardware to ship so I have not received any hardware. And since when have you not had hardware to ship? Can you clarify which hardware you're referring to? The hardware that you were referring to when you said we have not had hardware to ship. The Monarch. Okay, the Monarch. And so you were supposed to receive a Monarch when? There was no specific date. And you have not yet received it? Correct. John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 15 (816) 421-2876 Kansas City, MO 64105 Case 4:14-cv-00815-BCW Document 42-19 Filed 09/27/14 Page 15 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT And that's because there are no Monarch to ship? That is not correct. Okay, could you explain why you haven't receive a Monarch? Because we have customers waiting for Monday a. And do you know how many customers are waiting for Monarch? L ao mek; And do you expect to receive the Monarch? I have no expectations. And have you been promised any sort of timeframe for when you would receive the Monarch? No. And have you -- let's talk more about your other forms of compensation, so we talked about salary, we talked about the Monarch. Does the company give you any other benefits such as loans or loan payments? No. Does the company pay for your car? No. Your house? No. Do you have any ownership interest in the company? I do not. John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 16 (81645 28141-cv-00815-BCW Do®8iuamsenC4@,190 BAG06b09/27/14 Page 16 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT And are you receiving compensation for your time at today's deposition? Not to my knowledge. And you're being represented today; is correct? Yes, I am. By whom? Braden Perry. And who is paying for Mr. Perry? I do not know. And other than your attorney, have you talked with anyone about your appearance here today? My wife. And others at the company? No. Okay, now let's talk about some cash, bank and money market accounts at the company. Does Butterfly hold any paper currency or coins, either in U.S. or foreign currency? I don't know. What role do you have with relationship to Butterfly Labs with relation to its money? Do you have signatory authority on any checking accounts? No. Have you ever used a company corporate card a John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 17 (8160421578 19..cv-00815-BCW DoAHNBATAS:1° PHeP 09/27/14 Page 17 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT credit card? I have a corporate card. And what do you use that for? Business expenses. We'll get back though that in a moment. Do you know of any Butterfly Lab corporate bank account? I know of some, yes. And do you know the banks and the account numbers? I do not. And you said you're a signatory for none of these accounts? Correct. Do you know who is a signatory on the accounts? I do not. Do you know any signatories? I. do Tot... Do you know what the purpose of these accounts is? I do not. Do you know the current status of these accounts? I do not. Do you know the balances of these accounts? I do not. A Q A Q A Q A Q A Q A Q Are you aware of any withdrawals from these accounts? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 18 (8160-42158 4)-cv-00815-BCW Dobiiantay:t° PAY 09/27/14 Page 18 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT No. Have you personally made any withdrawals from these accounts? No. Are you aware of any employees who have made withdrawals for personal expenses? No. Have you heard any information about any employees using corporate accounts for personal expenditures? No. Does Butterfly Labs have any money market accounts? I don't know. And do you have any uncashed checks from Butterfly Labs accounts? Not to my knowledge. Okay, so you have corporate credit cards; correct? Actually I don't have one currently. I have had one in the past. And from when to when did you have it? MR. PERRY: I'm sorry. Can we hold on one second? Someone is knocking at the door. MS. MITHAL: Sure. (OFF-THE-RECORD DISCUSSION. ) John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 19 (8160436 2874-cv-00815-BCW DokwsrenCaty. 740 PeRb09/27/14 Page 19 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT MR. PERRY: Sorry about that, we can move forward. (By Ms. Mithal) So from when to when did you have a Butterfly Lab corporate credit account? I do not recall when I received a card and I have not had a card since approximately a week anda half ago. And you understand what circumstances did you not have the card any more? Apparently someone had used the number fraudulently in California while I was in London and the card was canceled. And you said that was last week? I think the week before. The week before. Do you know what that credit card number is? I do not. And who all was the authorized you're on that credit card? Just myself as far as I know. Do you have any more information about the fraud that was on the card? The only thing I was told that there was several one dollar charges in California from a gas station. John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 20 16)421-2 i O 6410 (81642178 7F) cy-00815-BCW DoGSBREAS: MC FRG 09/27/14 Page 20 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT And so that credit card account is closed? Yes. Okay. Was there an outstanding balance on that credit card? I don't know. I believe so. And do you know the amount? No. Are you aware of purchases made using these credit cards? MR. PERRY: I'm sorry? (By Ms. Mithal) Or that credit card? MR. PERRY: Thank you. I'm sorry, could you repeat the question? (By Ms. Mithal) Yes, are you aware of purchases that were made using that credit card? Yes. Okay, what purchases are you aware of? Purchases for food, possibly lodging such as a hotel, possibly airline tickets. Are these business travel expenses? Yes. Any other expenses or purchases that you're aware of on the card? Possibly for electronics or office supplies. So only the card was only used for business John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 21 (816P48e2%14-cv-00815-BCW Dogumenté?; 0 Gilegb09/27/14 Page 21 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT related expenses; is that correct? Yes. And have you personally made purchases using the card? Can you rephrase the question? Have you personally made purchases using the card? I have made business purchases using the card, yes. And are those for the purposes we just discussed? Yes, they are. And are you aware of any employees who have used the card for personal expenses? MR. PERRY: I'm sorry, are you referring to more than one card or are you referring to his corporate credit card? MS. MITHAL: His corporate credit card. Let me rephrase the question. (By Ms. Mithal) Are you aware of any employees who have used that card to make personal expenses? No; I'm. HOt. Are you aware of any employees who have used any other corporate credit cards to make personal expenses? I would not know. Have you heard anything about employees using any John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 22 (81@>421s2875-cv-00815-BCW DodtHeAtAe- NM Bideho9/27/14 Page 22 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT corporate credit cards to make personal expenses? No. Are you aware of a store called Cabella's? Io am. What is Cabella's? It's an outdoor and camping store. And what kinds of items do they sell? Various kinds of items used in camping and hunting and fishing. I'm not sure what else. I apologize. Were you finished with your answer? I am finished, yes. Have you ever made a purchase at Cabella's using a Butterfly Labs credit card? Yes. When was that? I don't recall. Do you remember for approximately how much it was? i do noc, And do you remember what item was purchased? For a specific charge? Yes. I could not say without seeing the charge. 0 rp Oo Fr Oo FP Oo FP OO P Okay. So let's take out what's been marked as AAJ. The court reporter, I believe, has the exhibits. If you wouldn't mind passing it to the John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 23 (8160438 287641-cv-00815-BCW Dodtiamant4Q@,140 BAeC609/27/14 Page 23 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT witness, please. MR. PERRY: We've got them, thank you. (By Ms. Mithal) Mr. Zerlan, can you take a look at this exhibit and turn to the second page at the bottom it says page 3 of 5. Yes, I see it. Towards the bottom of the page it lists the account holder. Do you see the name there? Yes, I do. And can you read that? Josh Zerlan. Yes, and then there's a card number, most of it has been X'd out, but there are four digits at the end, 0364; do you see that? EL do. Is this the corporate credit card that you had? T don't know. Okay. Is it possible that you had another corporate credit card? It's possible. Please look at the bottom of the page. Do you see those three charges for Cabella's retail? Yes. John n & Associate 911 Main A5°¢9 Suite 1930 Page: 24 (8165 PAI CV-OUSIS-BCW Dogumentae-t9o Filpg09/27/14 Page 240f40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Okay. Does this refresh your recollection as to purchases made at Cabella's using a corporate card? I remember purchases at Cabella's, yes. Okay, and you can see that it was in October of -- I'm sorry, I'm reading the date wrong. I was in April, April 16th and April 15th. Can you see those days all the way over to the left? Yes, which year does this indicate? It's indicates, I'm looking for that, too, hold on one sec. At top of the page it says statement date; do you see that? YES Says 2013? ¥ées. Okay, so do you recall making purchases in April of 2013 at Cabella's? No, the top of the page indicates a different account number, though, 0315 account number. Could it be that there are different numbers for different account holders on the same account? I wouldn't know. Okay, so let's talk more about Cabella's in general. You said that you purchased outdoor and John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 25 (816h43e28161-cv-00815-BCW Dokwentay.t8O AHdeh09/27/14 Page 25 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT camping store equipment there or is that just what it sells? What did you purchase there? I have purchased firearm, ammunition, food and other miscellaneous camping type gear. Okay, and what was the purpose of that? For office supplies and office protection. And could you describe what you -- yeah needed office protection? Because some of our customers or potential customers are not U.S. citizens and potentially dangerous. Dangerous in what way? Violent or perhaps they would seek to take our equipment or electronics without our consent. And how were you made aware of this? (Mr. Eric Johnson enters the deposition at this time.) I'm sorry, can you rephrase? (By Ms. Mithal) Yes, how were you made aware of that customers might be violent? Because I've received numerous death threats. In what regard were those death threats? What were they about, sir? I hate you. I'm going to kill you. Someone should kill you, that sort of thing. John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 26 (816043b-2816-cv-00815-BCW DodiamanC4g, MO BHeCb09/27/14 Page 26 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT And did they say why? Some of them may have said why. I don't recall what that would be. How did they come in? How did these complaints come? No typically via E-mail or private message on forums. Are they related to the company? No, well, some of them are related to the company. Some of them are related to myself personally. Okay, and so you purchased guns for yourself, for the office, to keep in the office; is that correct? No, that is not correct. Okay, so could you explain where the guns are now? There is one pistol at my office in a locked safe and there is one firearm at my house. And so these are for your use? Yes. And did you receive authorization from anyone at the company to make these purchases? I don't recall. Did you purchase them using a corporate credit card? A T aids John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 27 (8160428 76-cv-00815-BCW Dokantantaty.d40 ALRPO9/27/14 Page 27 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT And Mr. Zerlan, are these guns yours or are they the corporations? They are the corporations. Have you turned them over to the receiver? The receiver is in possession of one of them, yes. Okay, and are you planning to turning the other one over to the receiver? I will, absolutely. Okay. Did anyone direct to you purchase these items? No. Are you aware of anyone else at Butterfly Labs purchasing guns? I am not. Are you aware of a store called OMB Guns? Yes. And what kind of items does that store sell? Firearms. Have you ever made a purchase at that store using a Butterfly Labs credit card? Yes. And when was that? TL don't recall. And is this one of the guns that is -- that you just described? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 28 (816-@SR AF CV-00815-BCW Dogumentct, Mo Gilegs09/27/14 Page 28 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT There was no firearms purchased from OMB Guns. Can you turn to page 8, I think it's the fifth page in your pocket. It says page 3 of 8, I'm sorry about that. If you turn over two pages it says page 3 of 8? I see it. Then you see it says Josh Zerlan in about the middle of the page? Yes. Then the one part under that that's not redacted? Yes. It shows a purchase at OMB Guns for 38.02; is that correct? Yes. And can you describe that purchase? A monthly fee for using the range. Okay. And you paid for that using a corporate account? Yes; And why was that? To make sure I am safe and able to use the firearm. And did anyone at the office direct you to incur those expenses? No. John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 29 (816042152275 cy-00815-BCW DoAiaAAB-M° PidPo9/27/14 Page 29 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT And did you seek anyone's permission before doing that? I did not. When you were given the corporate credit card, what were you told its purpose was? I don't recall. Were you told to use it for company expenses only? I have no recollection of anything being told. Okay. And I'm sorry, going back to Cabella's for one second, did you ever purchase any supporting equipment or camping equipment from Cabella's using a company credit card? Beyond what we've already spoken of? It can include what we've already spoken of. Did you say you did purchase from Cabella's camping and outdoor equipment? Yes. And what was that for, for your personal use or for the company? Office protection. Okay. MR. PERRY: Can I clarify something? Are we talking about something purchased other than the firearm? Are you asking the witness if he purchased other equipment, camping or John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 30 (816L43e2874-cv-00815-BCW Dokanrentaty- 240 ALP09/27/14 Page 30 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT otherwise, other than the firearm from Cabella's? MS. MITHAL: Yes, yes, that's correct, thank you. A Not that I recall. (By Ms. Mithal) Okay. MR. PERRY: Thank you, sorry about that. MS. MITHAL: No, I appreciate it. (By Ms. Mithal) Hang on one sec. Now I would like to ask you some questions about bit coin wallets. Does Butterfly Labs have any bit coin wallet accounts? Yes. How many? I don't know. Do you know of any particular accounts? Yes. How many accounts do you know about? I believe seven. A Q A Q A Q A Q And could you tell me where each of those accounts is located? That question doesn't make sense. Okay. Let me rephrase. Hang on one sec. Mr. Zerlan, can you describe each wallet to me, so, for example, starting with the first John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 31 (8160428e28714-cv-00815-BCW DoBansen€Ca?; 90 64H 09/27/14 Page 31 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT wallet, how would I or the receiver, for example, access that wallet? MR. PERRY: I think we probably better identify each wallet other than just the first wallet. Do you have a reference number or some way to identify that better so it's clear for the record? (By Ms. Mithal) You could just identify then, that would be great, and if there's a particular one you're referring to we could call it the first coin wallet. We can start with the active wallet. Okay. MR. PERRY: Let's call it the active wallet, thank you. It's the wallet that our payments come into at Butterfly Labs. That particular wallet is stored on a laptop. (By Ms. Mithal) And if consumers pay for items using means other than bit coin, would there payments still go into that wallet? No. So this wallet is for consumers who pay in bit coins? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 32 816) 421-2876 K Cit O 6410 (8162421787 cv-00815-BCW DoNaBAEARAC? Big? 09/27/14 Page 32 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Among other things. What else would a consumer pay in and then it would end up in that wallet? Nothing. What else has ended up in that wallet? Mining revenue, other -- various other payments that are not customer related. I'm not sure what else but there probably is other things. Okay, so let's start with the mining revenue, could you describe that? When we burn in our hardware and it earns bit coins it is sent to that wallet. And I didn't hear a phrase you said. You said when we something our equipment? When we burn in our equipment, when we test it to be sure that it's functioning properly. And what equipment do you test? The hardware we manufacture. Do you test one piece of each type of hardware? No, we test each one individually. So every bit coin mining machine that Butterfly Labs manufactures you test? Ideally. And that's before it goes to the consumer? Yes. John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 33 (8160436 2874-cv-00815-BCW Dokaantay-MO fiLeP09/27/14 Page 33 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Those are machines that are sold to the consumers? Yes. And does the consumer know that the company has mind for bit coins using it? I wouldn't know. Are you aware of any representations on the website or anyone else where that would explain that to consumers? For which hardware pieces are we talking about? MR. PERRY: Can I just stop you a second. We're getting a little far afield of the limited subjected matter of this deposition pursuant to the Temporary Restraining Order. I'm going to let you go a little bit further and see where this goes, but what it comes down to, the wallets identification and the location of those wallets should be about the limit of your proper testimony. Thank you, though. MS. MITHAL: Okay, and thank you. (By Ms. Mithal) And with the wallet you -- I'm sorry, can the court reporter read back my last question? (WHEREUPON, THE PENDING QUESTION WAS READ BY THE REPORTER. ) MR. PERRY: I'm actually going to John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 34 (816048b-2814-cv-00815-BCW Dod&anmaat4a-240 6Hb0H09/27/14 Page 34 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT instruct the witness not to answer that question as it is outside the scope of the TRO. (By Ms. Mithal) So the mining revenue that goes into the active wallet comes from mining bit coins on machines that are going to be sent to consumers; is that correct? Yes. And do you have an approximation of about how much mining revenue goes into the active wallet on a monthly basis? I would have no idea. And you said you have no idea. Do you monitor that wallet at all? No. Do you use that wallet? No. Do you have access to it? No. And you said various other payments -- Yes. 0 fr Oo FP Oo FP O P -- make their way into the wallet. Okay, could you describe those? I don't know. I just know that some do go in there. Do you have any idea of any other kind of John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 35 (8 16--4se 1¢1-cv-00815-BCW Do®iansent42; 390 64l160509/27/14 Page 35 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT 1 payments? Not offhand. How do you know that other payments go in there? We discussed it in the past. With whom? With the -- our legal counsel. Anyone else? No. And who's we? The company employees. roy 0 FP Oo FP Oo FP Oo FP OO PF And so the company employees that are aware about 12 these various other payments are who? 13 A I believe Sonny, the only one I know for sure is 14 Sonny. is Q Okay, party? 16 MR. PERRY: And sorry, go ahead. Litt Q (By Ms. Mithal) And that's Sonny Vlesiedes? I 18 don't know if I pronounced his name correctly. 19 A YES. 20 Q Okay, so that was the active wallet. You are 21 aware of several other bit coin wallets. 22 Can you describe the next one? 23 A We have a storage wallet where the funds from the 24 active wallet get swept to on occasion. 25 Q And when does that happen? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 36 Fo Kansas City, MO 64105 ase 4:14-cv-00815-BCW Document 42-19 Filed 09/27/14 Page 36 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT I have no idea. And why does it happen? So we don't have a vulnerable wallet on the network. How do you know that? Again, when we were discussing it with our counsel. And when you say we, that's you and Mr. Vlesiedes? Yes. And the active wallet, going back to that fora second, did you turn that over to the receiver over do you know if it's been turned over to the receiver? It has. And do you know if the second wallet you talked about, the storage wallet, has that been turned over to the receiver? Yes. Do you know how much was in the storage wallet at the time it was turned over to the receiver? I do not. And do you know roughly how much has been in the storage wallet on a monthly basis? No. Do you know how much has been in it at any time? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 37 (8164S 28 44-cv-00815-BCW DokHtenCay: N° PAP o09/27/14 Page 37 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT No. And the same question with the active wallet, do you know how much has been in it on a monthly basis? No. At any time? No. Now, let's describe the next wallet. Can you do that, Mr. Zerlan? Yes, I have an expense wallet. And can you describe that wallet? It's a wallet I use for business expenses. What type of business expenses? Primarily anything that can be purchased with bit coin that's office related. I can't think of a specific example. I haven't used it in a very long time. When was the last time you used it? I don't know. Do you know how much was in that wallet the last time you used it? Between 11 and 14 bit coins. And why haven't you used it since the last time you used it? I've had no expenses. John sey & Associate 911 Main Street, Suite 1930 Page: 38 (81 e #5 V-O8SEE-Bcw Dogument-Ae-496 bilegs09/27/14 Page 38 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Has that been turned over to the receiver? It is in the possession of the receiver, yes. And so you have access to these storage wallet also? No. And do you have access to the active wallet? No. Who all has access to the active wallet? At this time only the receiver. And prior to that? Sonny. I believe Jeff Ownby may have had access to it but I don't know. And what about the storage wallet, who all has access to that? I don't know. Do you know anyone who had access to it prior to the receiver? Sonny. And let's move on to the next wallet. I have an advertising wallet that I pay for advertising from. And that's business advertising, Mr. Zerlan? Yes. And is that wallet active or was it until it was turned over to the receiver? John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 39 (816C4Be2874-cv-00815-BCW DotumenCag, MO bAHb09/27/14 Page 39 of 40 Federal Trade Commission vs. BF Labs Josh Zerlan 9/25/2014 ROUGH DRAFT Again, I haven't used it in quite a long time. The last time that you used it do you know how much was in it? Again, between 11 and 14 bit coins. And who else had access to that wallet? Just me. And how was that wallet funded? I don't know. I requested it to be replenished fit got low and Sonny sent it, I presume, from the active wallet. And how was the expense wallet funded? Same way. Okay. Who had access to the expense wallet? Just me. And who had access to the advertising wallet? Just me. And now who has access to them besides the receiver. I'm sorry. I'm going to rephrase. Prior to the receiver who also had access to those wallets, anyone? No one. Can you describe the next wallet? We have the EMC hot wallet. Okay, and what's in that wallet? The funds owed to users of the EMC website. John M. Bowen & Associates 911 Main Street, Suite 1930 Page: 40 (81604Ble2874-cv-00815-BCW Dokantantaty-240 FHP 09/27/14 Page 40 of 40