Alleged Conspiracy to Harm a Competitor Including a “Bought-and-Paid For” NYT Article Found Insufficient to Prove Actual Malice in a Defamation Suit - KWM

In June 2022, Dfinity Foundation (“Dfinity”) brought New York state law defamation and unfair business and trade practices claims against The New York Times Company (“Times”) and two individual reporters (“Times Defendants”), as well as Arkham Intelligence, Inc. (“Arkham”) and its current and former employees (“Arkham Defendants”).  The lawsuit arises from a New York Times article discussing the decline in value of Dfinity’s cryptocurrency Internet Computer Protocol (“ICP”) token.  The Times Article cited a report and analysis previously published by Arkham Intelligence, Inc. analyzing the rise and fall of the ICP Token.

Dfinity alleged these publications to be a “coordinated attack” to defame Dfinity, identifying twelve statements in Arkham’s published report and video and five statements from the Times’ article as “false and defamatory.”[1]  

Dfinity is a not-for-profit organization headquartered in Zurich, Switzerland, with a mission to develop internet-scale public blockchain which it calls the “Internet Computer.”  In May 2021, Dfinity launched its ICP Token.  The ICP Token traded for over $270 per token upon its launch, but its value quickly declined to less than $50 per token within a month or so.

On June 28, 2021, Arkham, a New York cryptocurrency analysis firm published a report describing the drop in the ICP Token price and explaining its theory for the decline (“Arkham Report”).  Along with that report, Arkham posted a video on Twitter with the following caption: “After a $300 billion valuation at launch, ICP tanked 95%. Everyone wants to know why. Arkham did a comprehensive analysis. This video presents our findings” (“Arkham Video”).[2]  The Arkham Report and Video ultimately concluded that “possible insiders connected to Dfinity have been dumping billions of dollars of ICP [Tokens] on exchanges at the expense of small early supporters and retail investors.”[3]

Later that same day, the Times published an article, “The Dramatic Crash of a Buzzy Cryptocurrency Raises Eyebrows,” discussing the rise and fall in the price of the ICP Token and quoting the Arkham Report (“Times Article”).  Nearly a year later, Dfinity brought an action in the U.S. District Court for the Southern District of New York.

Dfinity argued that defendants had conspired with wealthy elite—who stood to personally profit from the scheme—in spreading the word about the decline its ICP Token, and that the Arkham Defendants and the Times along with the two reporters, Andrew Ross Sorkin and Ephrat Livni, who wrote the Times Article were paid by unidentified wealthy elites in an effort to defame Dfinity. 

Since its landmark case in 1964, the United States Supreme Court has set forth and adhered to a very high bar for establishing defamation against a media company and journalists, known as the actual malice standard.  New York Times Co. v. Sullivan, 376 U.S. 254, 280, 84 S. Ct. 710, 726, 11 L. Ed. 2d 686 (1964) (“New York Times Standard”).  The standard requires a plaintiff to show that an alleged defamatory statement is made with actual malice, i.e., knowledge of falsity or reckless disregard for its truth or falsity, before it can be actionable against a media defendant.  In other words, the actual malice standard puts the subjective intent of a defendant at issue.  Mere proof of failure to investigate or negligence on the part of a media defendant, without a more concrete showing of a high degree of awareness, will not suffice.

To overcome the high bar of actual malice, Dfinity creatively pleaded a conspiracy-based theory to show the intent of the defendants.  It suggested that the three “back-to-back publications” were “bought-and-paid for” by New York’s “most rich and powerful elite,”[4] and that the Times reporters conducted no due diligence on their source and their reporting was a result of undue influence by an uber-wealthy third-party.  The alleged conspiracy concerned several salient facts, including the co-author and “Times’ star reporter” Andrew Ross Sorkin’s role as the co-creator of the hit television series “Billions,” alleging that Sorkin “had a motive to sensationalize the Dfinity story” to promote the success of his second career.[5]  Dfinity insinuated that it was highly suspicious that the Times and Sorkin would rely on an article published by Arkham, “a previously unknown company with no track record or reputation in the cryptocurrency industry,” and quote its CEO, Miguel Morel, who was likewise previously unknown and had no reputation in the cryptocurrency industry.[6]

The complaint also alleged that Arkham’s CEO Morel is the co-founder of Dfinity’s competitor, Reserve Protocol (“Reserve”), thereby rendering the statements in the Arkham Report inherently unreliable.  In support, Dfinity alleged that the Arkham Report was co-authored by several individuals who had connections to Reserve and appeared to be in their 20’s and, apparently, after the publication of the article and video, “fled” to England “where flush with apparently newfound cash, [] currently reside—frat boy style—in a huge mansion.”[7]  In further support, Dfinity pointed out that Arkham had shared its report with the Times before its public release.  Dfinity then concluded that the publications were “a coordinated attack” to defame Dfinity and “commissioned” by Arkham’s angel investor, a noted billionaire in other cryptocurrency projects, or an undisclosed third party. 

The district court, however, did not find the alleged conspiracy to be meritorious and dismissed the defamation claims against all defendants.  In doing so, Judge Kaplan found the alleged influence by wealthy elites to be “irrelevant” as to the accuracy of the challenged statements and insufficient to establish actual malice, and failed to show that the Times Defendants had reason to believe that the Arkham Report and Video were “inherently untrustworthy” at the time the Times Article was published.  Judge Kaplan further found the challenged statements in the Times Article to be non-actionable opinions.  For example, one of the challenged statements was that: “‘Dfinity did not follow the playbook of other successful projects,’ Arkham said. ‘Instead, it appears they quietly allowed the treasury and insiders to send billions of dollars of ICP to exchanges, while making it extremely difficult for their longtime supporters to access the tokens they were promised.’ ”  Stating that this statement was based on disclosed facts which were rebutted later in the same article by statements of alternative explanations offered by Dfinity and others, Judge Kaplan found the statement to be “clearly one of opinion.”[8]  Likewise, the Court found the same allegations insufficient to show that the Arkham Report was made with actual malice or “subjective awareness of probable falsity of the defamatory statement or reckless disregard for its truth or falsity.”[9]  Judge Kaplan underlined the fact that the Arkham Report referenced publicly available sources throughout and the complaint did not allege that the Arkham Defendants had reason to doubt the veracity of the sources.  

In November 2023, the court dismissed the complaint in its entirety.  Dfinity appealed the decision.  The United States Court of Appeals for the Second Circuit affirmed the dismissal in July 2024.

This case provides an interesting illustration of The New York Times or actual malice standard as applied in the modern media landscape.  The New York Times standard embodies heighted First Amendment protections for media defendants which for several decades has operated as a safe harbor for them.  Numerous attempts have been made to test its boundary—most of which have been unsuccessful.  Dfinity alleged a set of unique facts—including by presenting a novel theory of conspiracy—that make the plaintiffs’ attempt at overcoming the actual malice standard particularly intriguing.  The Times Defendants in their motion to dismiss did not expend any effort discussing Sorkin’s work in television or his alleged connections to uber-wealthy New York elites.  Instead, they took issue with Dfinity’s insufficient facial attack on the challenged statements, arguing those statements were substantially true and constituted non-actionable opinions, and that Dfinity failed to establish a plausible case demonstrating that the Times Article was malicious or motivated by undue influence.  In response to Dfinity’s suggestion that Sorkin and the Times would not have relied on the Arkham Report or quoted Arkham’s CEO if they had not been bought and paid for by someone with an ulterior motive, the Times Defendants argued that lack of experience does not mean one is lying and, in any event, Dfinity’s theory about an unidentified third party conspiring with the Times and Arkham is unsupported conjecture.  Seizing on this, Judge Kaplan found Dfinity’s allegations in this regard to be “conclusory,” raising the question of if Dfinity had identified the wealthy elite(s) who were behind the Arkham Report and Video and, presented in light of Sorkin’s second career in the television business and Arkham’s ties to Dfinity’s competitor, would that have been sufficient to show actual malice. 

The Second Circuit’s decision affirming Judge Kaplan’s dismissal would seem to suggest that the answer is no.  It found that “[t]he allegations that Arkham has ties to Dfinity's economic competitors or that Arkham's officers fled the country flush with cash after the report’s publication do not support a plausible inference that the Arkham Defendants acted with malice ‘at the time of publication.’”[10]

Both the district court and Second Circuit criticized Dfinity’s inadequate pleading with respect to malice and defendants’ subjective awareness and, in so doing, paid particular attention to the fact that the challenged statements appeared to be substantially true which was unchallenged by Dfinity because it did not argue that the sources relied on and data cited to by the defendants were inaccurate.  An important lesson from Dfinity is that while circumstantial evidence of suspected backroom dealings may provide helpful context for a challenged publication and may otherwise be persuasive as to motivation, the law of defamation does not shield one from criticism or disparaging statements—even from a competitor—so long as the statements do not misstate a fact and the speaker had no reason to believe the statements to be false at the time the speech was made.