California Appellate Court Allows Amendment of Lawsuit Against YouTube Over Cryptocurrency Scams

On Tuesday, April 2, 2024, the Court of Appeal of California, Sixth Appellate District issued an opinion modifying its previous ruling in a case regarding cryptocurrency scams on YouTube.

The case involves Steve Wozniak, an Apple co-founder, and 17 other individuals who lost varying amounts of cryptocurrency after falling victim to an elaborate online scam perpetrated on YouTube. Scammers would hijack popular YouTube channels and disguise fake videos to appear as if famous tech entrepreneurs like Wozniak were hosting “bitcoin giveaway events.” The fake videos would encourage viewers to send cryptocurrency like bitcoin to a specific account, promising to return double the amount. However, anyone who transferred funds would receive nothing in return.

Wozniak and the other victims sued YouTube and its parent company Google, claiming the companies knew about the ongoing scams but failed to take adequate actions to prevent hacked channels and remove scam videos. The plaintiffs asserted nine legal causes of action and sought to hold YouTube liable rather than treating them as a neutral platform. However, the trial court sustained YouTube’s demurrer, finding the company was immune under Section 230 of the Communications Decency Act, which shields internet platforms from liability for third-party content.

In its initial March 2024 ruling, the appellate court agreed most claims were barred due to Section 230 immunity as they treated YouTube as a publisher of others’ content. However, the court found one allegation potentially merited further examination. The plaintiffs argued YouTube contributed to the scam’s unlawfulness by providing verification badges, which falsely signaled hijacked channels had been vetted, to channels perpetuating the scam. While these allegations could potentially fall outside Section 230, the appellate court said they were not pleaded clearly enough. As such, the trial court’s dismissal was reversed, but no causes of action were fully reinstated.

In its April 2024 modification, the appellate court denied YouTube’s request for rehearing. While affirming its previous immunity analysis regarding third-party content, the court maintained the allegations concerning verification badges required leave to amend. It stressed such claims did not seek to treat YouTube as a publisher and potentially involved YouTube directly in generating unlawful content. As such, the trial court’s refusal to allow amendment was deemed an abuse of discretion. The case was remanded to permit revised allegations about YouTube’s alleged role in assigning verified status to scam channels.

The ruling confirms Section 230’s broad protection for internet platforms but indicates its limits when a company directly engages in or contributes to unlawfulthird-party material. The final outcome remains pending as the plaintiffs may amend their complaint on the specified issue for further litigation.

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