The United States Federal Trade Commission (FTC) is suing a startup for spending its raised funds on bitcoins (BTC) and credit card bills, rather than the stated products, the court filing revealed on May 6.

The FTC brought a lawsuit before the U.S. District Court for the Southern District of Texas alleging that the startup dubbed iBackPack and its officer and authorized signatory Douglas Monahan misused a "large share" of $800,000 raised during four crowdfunding campaigns from consumers.

Specifically, the defendants allegedly did not use the funds for development, production and distribution of the stated products such as backpacks, but purchased bitcoins, made automated teller machines (ATM) withdrawals and paid off personal credit cards.

The FTC states in the filing that the defendants violated the FTC Act, that prohibits "unfair or deceptive acts or practices in or affecting commerce." The court may therefore award ancillary relief, including rescission or reformation of contracts, restitution, refunds, and the disgorgement of ill-gotten funds.

Last month, the Manhattan district attorney Cyrus R. Vance, Jr. indicted a group of individuals who allegedly operated stores on the dark web that sold and shipped “hundreds of thousands” of tablets of counterfeit drugs and laundered millions of dollars with bitcoin. The individuals reportedly withdrew more than $1 million using bitcoin ATMs.

Also in April, Cointelegraph reported that LocalBitcoins trader Jacob Burrell Campos, who sold bitcoin to more than 1,000 people in the U.S., will serve two years in federal jail. Burrell, a Mexican citizen, amassed more than $820,000 from bitcoin sales on the P2P platform between 2015 and 2018.