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Belle Gibson, 25, gained fame in Australia after she claimed to have beaten cancer using natural remedies rather than medical intervention.
She launched a successful app and cookbook, but later admitted the diagnosis was made up.
In ruling against Ms Gibson, a judge said the blogger may have "genuinely" believed what she was saying.
"Not all human beings are rational and reasonable all of the time," Federal Court of Australia judge Debbie Mortimer said on Wednesday.
"It seems to me that, at least in some respects, it might be open to find that Gibson suffered from a series of delusions about her health condition."
Ms Gibson would be penalised at a later date, she said.
How deception unfoldedMs Gibson's claims to have cured her cancer with Ayurvedic medicine, oxygen therapy and a gluten and refined sugar-free diet propelled her to prominence.
She capitalised on her fame with a successful app and a cookbook, both called The Whole Pantry, and promised to deliver a share of the profits to several charities.
But the money allegedly never reached the charities and cracks began to appear in Ms Gibson's story, leading her to admit her claims were untrue.
Attempting to justify her behaviour, she told a magazine: "If I don't have an answer, then I will sort of theorise it myself and come up with one. I think that's an easy thing to often revert to if you don't know what the answer is."
Justice Mortimer upheld "most, but not all" allegations brought by Consumer Affairs Victoria against Ms Gibson.
She said Ms Gibson's false claims spurred people to buy her products.
"Her 'pitch' overwhelmingly used groups likely to evoke sympathy because of their vulnerabilities - young girls, asylum seekers, sick children," Justice Mortimer said.