Judge Dismisses Defamation Suit Against Chainalysis

• A New York Supreme Court Judge has granted the dismissal of a defamation suit against blockchain surveillance firm Chainalysis filed in January
• The dismissal is granted on New York Anti-SLAPP laws inteded to harbor free speech and public discourse
• The judge argues that statements made by Chainalysis Reactor constitute speech in the public interest

The Honorable Lyle E. Frank of the New York Supreme Court has granted Chainalysis' motion to dismiss in a defamation suit filed against the surveillance firm last January by the crypto project YieldNodes via its parent entity Exceptional Media. The dismissal is granted on the grounds of New York Anti-SLAPP laws, initially designed to harbor free speech and participation in public discourse.

"There can be no dispute [...] that the 2023 Crime Report involves an issue of public interest," writes Judge Frank in his decision, referring to Chainalysis' Crypto Crime Report which classified the YieldNodes project as the second largest scam of 2022.

"In part because the technology and basic concept of cryptocurrency is so new, and because there have not yet been comprehensive regulatory schemes developed, there is a strong potential for cryptocurrency scams to inflict severe financial damage on the public. Reports warning the public of potential scams would be well within the public’s interest."

"Furthermore," Judge Frank opines, "given Chainalysis’ history of advising and aiding the United States Government on cryptocurrency scams, the underlying claim clearly involves a matter of public interest as to the Crime Report."

Anti-SLAPP laws significantly shift the burden of proof to the plaintiff, requiring the plaintiff to provide substantial evidence that the defendant acted recklessly or maliciously. SLAPPs, also known as Strategic Lawsuits Against Public Participation, are commonly employed by wealthy individuals and large corporations against journalists and other members of the public participating in public discourse to silence critique.

The defendant "never pleads facts that would countermand Chainalysis’ description of an investment scam," Judge Frank ruled, and "recites no facts that go towards actual knowledge or reckless disregard of either statement’s falsity by Chainalysis." Instead, Judge Frank found the plaintiff's case is "heavy on bare conclusory statements." "Exceptional has not adequately shown a substantial basis in either law or fact," Judge Frank ruled.

Exceptional Media claims that Chainalysis' investigation software Reactor had flagged the project in 2022, leading multiple exchanges to freeze assets associated with the project – but Exceptional Media was unable to provide the court with specific business relationships that were harmed due to Chainalysis' statements intending to harm the plaintiff.

In a previous hearing, Exceptional Media lawyer Tor Ekeland claimed that this vagueness was a result of Chainalysis’ closed structure: “We’re not privy to … who their clients were,” and YieldNodes only learned about its designation as a scam after exchanges began blacklisting the service in response.

"Any alleged statement made within the Reactor subscription service regarding the nature of YieldNodes would have been made in furtherance of the public interest that Chainalysis serves by monitoring the nature of the cryptocurrency field," Judge Frank found, comparing the closed source subscription software to private Facebook groups.

Referring to the case of US vs. Sterlingov, a Swedish-Russian citizen also represented by Ekeland, who was found guilty of operating an unlicensed money transmitter with the help of Chainalysis Ractor sparking controversy around the software's accuracy, Judge Frank states that Exceptional's suit "is an attempt for further Reactor algorithm discovery and an attempt to chill Chainalysis’ speech" in "a classic SLAPP fact-pattern," citing public statements made by Ekeland to "sue the crap out of Chainalysis after defendant’s trial concludes.”

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