A Federal Court judge has thrown out a class action lawsuit alleging that Meta, Google and Twitter formed a cartel to block Web 3.0 competitors by imposing blanket cryptocurrency advertising restrictions that cost the crypto industry hundreds of billions of dollars.
The lawsuit – which was lodged in August 2020 by Israel-based Australian lawyer Andrew Hamilton through his company JPB Liberty – railed against the “almost absolute power” of tech giants Facebook, Google and Twitter, warning that they were “a huge threat to freedom and liberty” and argued that their 2018 bans of all cryptocurrency ads “had a devastating effect on all cryptocurrency investors and projects”.
At the time, the firms blamed the bans on the high incidence of cryptocurrency scams, but the lawsuit alleges the companies were actually using their market weight to block “Web 3.0 competitors advertising” in breach of Australian Competition and Consumer Act 2010 provisions preventing cartel and anti-competition behaviour.
These actions, the lawsuit alleges, caused material harm to holders of 33 cryptocurrencies – including Bitcoin, Ethereum and ZCash – as well as seven other categories of people connected to the supply of cryptocurrency-related goods and services.
Eyeing billions in potential penalties, Hamilton – a former Telstra solicitor who claims to have “a rare gift in seeing legal strategies others miss” – mortgaged his home and spent 18 months preparing the case, ultimately signing up around 650 class members in over 40 countries with a claim value of more than $1 billion.
To fund the ongoing work – which was based out of “plaintiff friendly” Australia, Hamilton explained, because “it is the best jurisdiction for doing Web 3.0 litigation [and] funding of large global class actions” – he moved to use ‘social blockchain’ operator Steem to issue a new cryptocurrency token called SUFB (for Sue Facebook) that promised a portion of any damages payouts in return for up-front investment.
The case “has the possibility to pay out a large return quite early with a settlement,” JPB Liberty vice president of technology and public affairs Dr Brian Bishko wrote in 2019 arguing that “the more money we can raise through crowd funding and this novel SPS method, the more power we have dictating how the case is fought”.
Nearly 3 million SUFB tokens were ultimately issued, with Hamilton and his family owning around 384,000 tokens and JPB Liberty 2 million in a complex arrangement that could have ultimately netted him an estimated $118 million in commission.
Yet for all its ambitions, the case – which gained momentum in June 2022 and began in February with a first contested hearing speech by Hamilton, who represented himself in the action – was summarily dismissed by Federal Court Justice Cheeseman, who in a lengthy ruling called Hamilton’s arguments “misconceived for many reasons”.
Among those were questions as to whether Hamilton had been paid SUFB tokens for legal work in preparing the case – contravening accepted practice prohibiting attorneys from being paid up front by class members – and whether the case could proceed fairly given that “as the major token holder, there is potential for JPB Liberty’s interests… to diverge and conflict with those of minority holders”.
“To permit the proceedings to continue would bring the administration of justice into disrepute,” Cheeseman J wrote in flagging problems with Hamilton’s “multi-faceted interests in the proceeding” and ordering that the proceeding “be permanently stayed”.
Walking the thin gold line
The failure of the long-fomenting class action – which comes at the same time as the commencement of the trial of failed FTX founder and one-time ‘King of Crypto’ Sam Bankman-Fried – is the latest in a string of high-profile setbacks for the global cryptocurrency industry.
With Australian crypto exchange Swyftx anticipating an industry ‘worst-case scenario’, Binance Australia being fined $2 million for spam as it is sued by US regulators, and OneCoin co-founder Karl Sebastian Greenwood now in jail after perpetrating one of the biggest scams in history, government bodies are working out how to protect Australians from unscrupulous operators, and how the industry might be regulated in the long term.
Financial regulators are struggling to bring order to an industry that European Central Bank executive board member Fabio Pannetta called “a new Wild West” in which “crypto-assets are bringing about instability and insecurity – the exact opposite of what they promised.”
Social-media giants have embraced government regulation, with Facebook relaxing its contentious crypto advertising restrictions in 2019 and again in 2021 – when it expanded the number of cryptocurrency licenses it accepts from 3 to 27.
“The cryptocurrency landscape has continued to mature and stabilise in recent years,” the company noted, “and has seen more government regulations that are setting clearer rules for their industry.”
Yet problems with cryptocurrency advertising continue, with the ACCC last year taking Meta to Federal Court over cryptocurrency ads featuring the likenesses of famous Australians who had never approved their use.
Current Meta regulations note that “prior written permission” and a “recognised regulatory license or registration” are required for advertisers to be allowed to promote cryptocurrency trading platforms, software and related services as well as tools for monetising, reselling, swapping or staking of cryptocurrencies.
Australians lost over $221 million to investment scams during the first eight months of this year alone, according to the ACCC’s ScamWatch service, with 46 per cent of reported incidents involving financial losses – confirming that such scammers continue to be both successful and prolific.