Facebook CEO Mark Zuckerberg is facing a high-powered technology law firm in a suit that may cost him 50 percent of the billion-dollar company.
An upstate New York businessman, Paul Ceglia, says he owns 50 percent of Facebook, and that the founder of Facebook defrauded him. He has the backing of DLA Piper, which is confident that the evidence he has presented is genuine. DLA Piper has represented several large corporations and Silicon Valley venture capital firms.
Ceglia filed a lawsuit against Zuckerberg and Facebook in July, charging he had paid Zuckerberg for some web development work and invested $1,000 in the then-nascent Facebook in exchange for 50 percent of the business. Originally he claimed that under the terms of the contract, he now owns 84 percent of the company, which would be worth billions. He has since filed an amended complaint that reduces the amount to 50 percent. The amended complaint quotes several emails that passed between Ceglia and Zuckerberg.
DLA Piper's Robert Brownlie is one of the lawyers on the case and he has told the Wall Street Journal that he thinks the emails are genuine. Brownlie said he hasn't seen the original contract, but is confident that it too, is real. Brownlie said the firm spent weeks investigating the claim.
Facebook's lawyers say the evidence is fake. This is a fraudulent lawsuit brought by a convicted felon, and we look forward to defending it in court. From the outset, we've said that this scam artist's claims are ridiculous and this newest complaint is no better, said Orin Snyder, an attorney at Gibson, Dunn & Crutcher LLP, in an emailed statement.
Ceglia claims Zuckerberg deliberately concealed Facebook's early success. The suit also accuses Zuckerberg of fraud, quoting emails that say the Facebook founder was thinking of abandoning the project altogether -- even as venture investors were interested. The plan, Ceglia says, was to convince him to take a payout of $2,000, relinquishing his claim to the business.
The story started with a contract Ceglia gave in evidence in the suit. Dated April 28, 2003, it states that Ceglia is purchasing a 50 percent interest in Zuckerberg's software, programming language and business interests for $1,000. In addition, if the web development work is not completed by a certain date, Ceglia is entitled to an additional 1 percent of the company for each day that passes after the deadline.
Facebook's lawyers have said previously that the dates are wrong; Facebook wasn't conceived of and the name wasn't chosen until months later. The original contract hasn't been turned over to the court yet, nor have copies of the original emails been submitted. Facebook says the emails are fakes also.
Ceglia has faced fraud charges before. In October 2009 the state of New York charged him with one count of first degree scheme to defraud and 12 counts of fourth degree grand larceny. Customers of his wood pellets business had complained that they had paid for them but never received any. But Facebook is a much larger target. If the emails and the contract are in fact, fabrications, Ceglia could face years of jail time.
The emails purport to show Zuckerberg accepting the terms of a deal in which he would do web development work for Ceglia -- including work on a social networking site that would later become Facebook. Ceglia claims he paid Zuckerberg a total of $2,000. The first $1,000 was paid as part of the contract; the second was to continue development.
In November 2003, Zuckerberg sent an urgent email to Ceglia, saying that two upperclassmen -- the brothers Cameron and Tyler Winklevoss -- were also planning to launch a social networking site. He asked for an extra $1,000 to speed the work on his site and get it ready sooner. The Winklevosses later sued Zuckerberg for stealing the idea for Facebook. They tried unsuccessfully to alter the settlement they signed with him - the courts ruled Monday that they had to abide by the original terms.
On Jan. 1, 2004, Zuckerberg sent an email thanking Ceglia for the extra $1,000 and says that he needs more funding, which he didn't get. A few days later, on Jan. 5, 2004, Ceglia asked when the site, then called The Face Book, would be finished. I've been stalled long enough on this thing and if I don't see something soon (sic) I'll have no choice but to contact the school and perhaps your parents in Dobbs Ferry and let them know whats (sic) been going on.
On Feb. 2, 2004, Zuckerberg asked Ceglia to drop his ownership to 50-50. He was far enough past the deadline that Ceglia's ownership was in excess of 80 percent. Ceglia agreed. The next day, Zuckerberg said the site -- called thefacebook.com was up.
By April, Zuckerberg wrote the following: Paul, I have become too busy to deal with the site and no one wants to pay for it, so I am thinking of just taking the server down... I would just like to give you your two thousand dollars back and call it even on the rest of the money you owe me for the extra work...
At that point thefacebook.com was a success at Harvard, and others were interested in investing. But Zuckerberg didn't tell Ceglia that. Ceglia's lawyers say Zuckerberg's tactics were an attempt to goad Ceglia into dissolving the business relationship by making it unpleasant.
On July 22, Zuckerberg wrote Ceglia that he was sorry about what he had done and again offered to repay Ceglia the $2,000 he had been paid. But the suit says that at the same time Zuckerberg wrote the email, he was about to receive funding from investors and was meeting with several venture capital funds.
A week later, Zuckerberg incorporated Facebook, Inc., in Delaware. Sean Parker, an entrepreneur, became Facebook's president, and received an investment that month from Peter Thiel, co-founder of PayPal.
Ceglia's attorneys did not return calls for comment.