GSB Gold Standard Corporation’s Attack on a Blogger Who Calls It Out for a Ponzi Scheme

by Paul Alan Levy

Today we have filed our first brief  in a case in the First Department of New York’s Appellate Division that may present an opportunity to secure an appellate ruling in that state on the Dendrite standard, the consensus approach to deciding whether an individual or company contending that speech about it was wrongful has made enough of a showing of merit to warrant denying the speaker her First Amendment right to speak anonymously.

The case began when GSB Gold Standard Corporation, which appears to operate out of Dubai, complained about the persistent attention paid to it by the BehindMLM blog, which discusses various MultiLevel Marketing (MLM) schemes, with a particular attention to cryptocurrency scams. Citing several blog posts in which BehindMLM referred to GSB as a Ponzi scheme, GSB filed a petition for discovery in New York’s Supreme Court for New York County, seeking to compel Google and GoDaddy to provide identifying information about BehindMLM. The Doe, having been referred by EFF to the redoubtable Ray Beckerman, moved to quash the subpoenas. Ordinarily, you would expect the party seeking to identify an anonymous speaker to submit a detailed affidavit showing an evidentiary basis for its claims. But GSB chose to stand on its petition, citing New York  cases involving discovery that did not raise issues of First Amendment concern and  urging the court to reject Dendrite and its progeny as the law of other jurisdictions.  It asserted that, because it had persuaded a court in Germany to rule against Google on whether the blog was defamatory, BehindMLM could no longer defend herself here in the United States. And astonishingly, a trial judge in New York accepted that argument.

The Doe moved for a stay pending appeal.  We filed a reply brief supporting the stay explaining Doe’s position in some detail. Among other things, we point out that, given the very nasty people whom the blogger typically exposes, the blogger runs a particular risk of physical violence, giving him a significant interest to be weighed on the non-disclosure side of Dendrite’s final balancing stage. The danger of extra-judicial retaliation has long provided one of the most important reasons why so many courts have embraced the Dendrite approach to this problem.

But there is an unusual aspect to this case that bears mentioning. As it happens, the very day before GSB filed its brief in opposition to the stay pending appeal, the Texas Security Commissioner weighed in on GSB, asserting that it operates an illegal multilevel marketing scam in Texas and forbidding GSB from offering any further investments in Texas. Among other findings, the Commissioner noted that GSB had undertaken by various means to prevent members of the public from learning how questionable its investment offerings are – such as by imposing a non-disparagement clause on participants in its investment programs and by filing lawsuits. In this regard, the Texas ruling specifically identified the New York petition directed at the BehindMLM blog as part of GSB’s scheme to defraud investors. Several other securities regulators, as summarized in this warning issued by South Africa’s Financial Sector Conduct Authority shortly after GSB held a marketing event in South Africa, have also taken action against GSB.

Because the First Amendment right of the speakers is at stake, courts have tended to focus on the impact of intimidating litigation on anonymous speakers in deciding Dendrite cases. But Public Citizen has pursued the Dendrite approach for an additional reason: the recognition that, if whistleblowers are denied the ability to speak anonymously when they are doing no wrong in their speech, the result may be to deprive members of the public of information it they need to protect their interests. This case is an excellent reminder of the need for that protection for the marketplace of ideas.

We are grateful to Ray Beckerman and to Jennifer Insley-Pruitt and Luke Reilly of Dechert LLP, for their invaluable assistance in this case.

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