In 2010, a New York entrepreneur made an explosive legal claim: an agreement that he had with Facebook’s founder, Mark Zuckerberg, entitled him to a major stake in the social-networking giant.
Mr. Zuckerberg staunchly denied the claim, and his lawyers insisted that the entrepreneur, Paul Ceglia, was a scam artist.
On Friday, federal authorities sided with Mr. Zuckerberg, arresting Mr. Ceglia and charging him with a multibillion-dollar scheme to defraud Facebook.
http://liarcatchers.com/fraud_investigation.html
Prosecutors say that Mr. Ceglia, 39, of Wellsville, N.Y., filed a sham federal lawsuit claiming to have been promised a 50 percent share of Facebook in 2003, and doctored, fabricated and destroyed evidence to support his claims.
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Documents Documents: Complaint Against Paul Ceglia
“Ceglia’s alleged conduct not only constitutes a massive fraud attempt, but also an attempted corruption of our legal system through the manufacture of false evidence,” said Preet Bharara, the United States attorney in Manhattan. “Dressing up a fraud as a lawsuit does not immunize you from prosecution.”
Mr. Ceglia made an appearance in Federal District Court in Buffalo on Friday afternoon and pleaded not guilty. His lawyer, Dean Boland, did not return telephone calls seeking comment.
Mr. Ceglia’s claims received outsize attention in part because he made them around the time of the release of “The Social Network,” the Academy Award-winning film that told the tale of Mr. Zuckerberg’s legal battle with his Harvard schoolmates, the Winklevoss twins, over the origins of Facebook. Mr. Zuckerberg paid the Winklevosses at least $65 million to settle their case.
From the moment the lawsuit was filed, Facebook’s lawyers have called Mr. Ceglia a mountebank and raised questions about his credibility. In 1997, Mr. Ceglia pleaded guilty to possessing hallucinogenic mushrooms. And in 2010, the New York State attorney general criminally charged him with defrauding customers in a now-defunct wood pellet manufacturing business that he had run with his wife.
Questions are now also being raised about the lawyers who represented Mr. Ceglia and kept his case alive for two years.
Mark Zuckerberg, the chief executive of Facebook.Gonzalo Fuentes/ReutersMark Zuckerberg, the chief executive of Facebook.
In his original lawsuit, filed in 2010, Mr. Ceglia was represented by Paul Argentieri, a sole practitioner in upstate New York. An amended complaint was filed in April 2011 by Robert W. Brownlie of DLA Piper, the world’s largest law firm, and Dennis C. Vacco, a former New York attorney general now in private practice at Lippes Mathias Wexler Friedman in Buffalo.
Last year, Mr. Brownlie of DLA Piper declined a request by The New York Times to produce the original documents backing his client’s legal claims. “That will come out during the course of litigation,” Mr. Brownlie said. “Anyone who claims this case is fraudulent and brought by a scam artist will come to regret those claims.”
Yet court records indicate that other lawyers were flagging serious concerns with the authenticity of Mr. Ceglia’s evidence. Before he retained DLA Piper and Lippes Mathis, Mr. Ceglia hired another law firm, Kasowitz Benson Friedman & Torres. But Kasowitz Benson withdrew its representation and told DLA Piper and Lippes Mathias that it believed that Mr. Ceglia’s purported contract with Mr. Zuckerberg was a fraud.
Mr. Brownlie and Mr. Vacco later withdrew as lawyers in the case. They did not return calls and e-mails seeking comment.
Mr. Ceglia’s actions date to 2003, when Mr. Zuckerberg was a student at Harvard University. Mr. Zuckerberg responded to an advertisement on Craigslist placed by Mr. Ceglia, who needed a programmer to help with an Internet business he had started. Mr. Ceglia hired Mr. Zuckerberg and agreed to pay him $1,000 for his work.
Months later, in his college dorm room, Mr. Zuckerberg started a business called Facebook.
Mr. Zuckerberg did not hear from Mr. Ceglia again until 2010, when he was served with a complaint that claimed Mr. Ceglia was entitled to a significant ownership stake in the social network.
According to the lawsuit, as part of their business dealings, Mr. Zuckerberg had promised him a substantial interest in either “The Face Book” or “The Page Book.” Attached to the legal papers was a contract that contained language giving Mr. Ceglia an interest in Mr. Zuckerberg’s start-up. The filing also included e-mail exchanges between Mr. Ceglia and Mr. Zuckerberg that purported to show their collaboration on business ideas.
Federal prosecutors say that Mr. Ceglia’s claims — and the documents supporting them — were entirely false. Government investigators searched Mr. Ceglia’s hard drive and discovered the original contract, which made no reference to Facebook. And Harvard’s e-mail servers had no record of the e-mails.
Facebook’s lawyers at Gibson, Dunn & Crutcher commended the Justice Department and indicated they would pursue possible claims against the lawyers who represented Mr. Ceglia.
“Ceglia used the federal court system to perpetuate his fraud and will now be held accountable for his criminal scheme,” said Orin Snyder, a partner at Gibson Dunn. “Facebook also intends to hold accountable all of those who assisted Ceglia in this outrageous fraud.”
