Facebook Claimant Says He Has Zuckerberg's E-Mails to Prove 50% Ownership

E-mails allegedly written by Facebook Inc. co-founder Mark Zuckerberg are cited in a new court filing byPaul Ceglia as proof of his claim that a 2003 contract gave him 50 percent of the company.

The revised complaint, filed yesterday in federal court in Buffalo, New York, includes new allegations supporting Ceglia’s claim to own part of Palo Alto, California-based Facebook, the world’s biggest social-networking site. Ceglia says Zuckerberg sent him numerous e-mails discussing the terms of the contract and the early development of “The Face Book.”

“They’re exactly what you would expect between two people trying to develop a website,” said Robert Brownlie, a lawyer for Ceglia, referring to the e-mails in a telephone interview.

Ceglia alleges that Zuckerberg defrauded him, lying about the early success of “The Face Book” at Harvard University, where Zuckerberg was a student at the time. Ceglia claims he is entitled to part ownership of Facebook, a closely held company worth as much as $55 billion, according to Sharespost.com, an online marketplace for investment in companies that aren’t publicly traded.

‘The Social Network

On the same day that Ceglia amended his complaint, a federal appeals court upheld the settlement of a years-long legal dispute dramatized in the Academy Award-winning 2010 film “The Social Network” that pitted Zuckerberg against former classmates from Harvard who accused him of stealing the idea for Facebook.

“This is a fraudulent lawsuit brought by a convicted felon, and we look forward to defending it in court,” said Orin Snyder, a lawyer for Facebook, in an e-mailed statement. Snyder may have been referring to Ceglia’s 1997 guilty plea to possession of hallucinogenic mushrooms in Carthage, Texas. Ceglia was fined $15,000 and permitted to return to New York state, according to court files.

In an interview with Bloomberg in July, Ceglia said he regretted the incident. He didn’t return a voice-mail message yesterday. Brownlie didn’t return an e-mail today seeking comment on Snyder’s characterization of his client.

Snyder, a partner in the firm Gibson, Dunn & Crutcher LLP, called Ceglia’s original claim “ridiculous,” adding that “this newest complaint is no better.”

New Lawyers

Ceglia also filed papers yesterday switching lawyers from Terrence Connors, from the Buffalo firm Connors & Vilardo LLP, to a team of lawyers from DLA Piper LLP, one of the world’s biggest law firms. DLA Piper has 3,500 attorneys in 29 countries, according to its website. Former New York Attorney General Dennis Vacco is also part of the legal team.

In yesterday’s ruling by the U.S. Court of Appeals in San Francisco, a panel of judges rejected a request by former Harvard studentsCameron and Tyler Winklevoss to undo a settlement they reached with Zuckerberg in 2008. The Winklevoss twins argued the 2008 agreement should be voided because Facebook didn’t disclose an accurate valuation of its shares before they agreed to settle for $65 million in stock and cash.

The Winklevosses will ask a larger panel of judges on the appeals court to review the case, said Jerome Falk, an attorney for the brothers.

‘Stalling’ Upperclassmen

Among the e-mails that Ceglia cited in his new complaint is one dated Nov. 22, 2003, in which Zuckerberg allegedly told him: “I have recently met with a couple of upperclassmen here at Harvard that are planning to launch a site very similar to ours. If we don’t make a move soon, I think we will lose the advantage we would have if we release before them. I’ve stalled them for the time being,” Zuckerberg said, before asking for another $1,000 from Ceglia, according to the papers.

The Winklevosses were Harvard seniors when Zuckerberg put Facebook online in 2004.

Ceglia claims in his complaint that he contributed “his time, ideas, knowhow, and other ‘sweat equity’” to the start of Facebook. He claims he and Zuckerberg formed a general partnership in 2003 and that Ceglia should have gotten half- ownership when Facebook was incorporated the following year. Ceglia seeks unspecified damages and a judicial accounting of what Zuckerberg gained from Ceglia’s alleged half-interest over the years since then.

Fifty Percent

“Ceglia is entitled to receive 50 percent of the total equity interest in Facebook Inc. received by, and promised to Zuckerberg, including, but not limited to, stock, stock options and restricted stock units,” Ceglia claimed in the complaint.

Ceglia originally sued in state court in New York’s Allegany County June 30, claiming a two-page “Work for Hire” contract signed by Zuckerberg in 2003, when he was an 18-year- old freshman at Harvard, entitled Ceglia to half of the company, plus 1 percent per day that the start of the site, called “The Face Book,” was delayed. At the time, Ceglia’s total demand was for 84 percent of Facebook. The case was later transferred to federal court in Buffalo.

In the new complaint, Ceglia said that, at Zuckerberg’s request, he agreed in 2004 not to enforce the provision in the alleged contract that would have entitled him to a majority of Facebook.

“Zuckerberg sent to Ceglia e-mails complaining that a provision in the agreement giving Ceglia an additional 1 percent interest in the business for each day after Jan. 1, 2004, that ‘The Face Book’ website wasn’t complete, was unfair because it would give Ceglia more than 80 percent ownership of the business, including thefacebook.com website,” Ceglia said in the new complaint.

Different Years

The allegations in the complaint conflict with claims by Zuckerberg, Facebook and others that Zuckerberg conceived of the website as a Harvard sophomore in 2004, not in 2003, as Ceglia claims.

According to the complaint, Ceglia hired Zuckerberg through an ad on Craigslist.com to write computer code for a project of Ceglia’s called StreetFax.com. After several telephone conversations, Ceglia agreed in April 2003 to pay Zuckerberg $1,000 for work on StreetFax plus a $1,000 investment in “The Face Book,” which Zuckerberg was developing.

Ceglia and Zuckerberg met in the lobby of the Radisson Hotel in Boston on April 28, 2003, where they signed the contract, Ceglia said.

‘Women and Beer’

According to one e-mail, Zuckerberg asked if he could adapt the source code from StreetFax for use on The Face Book. And in a Sept. 2, 2003, e-mail, Ceglia dissuaded Zuckerberg from charging alumni a monthly fee for using the site.

“Maybe we could make it free until it was popular and then start charging?” Ceglia suggested, according to one excerpt.

On Jan. 5, 2004, Ceglia questioned Zuckerberg about delays in launching The Face Book, according to the complaint.

“I’m starting to think you just blew that money, Mark,” Ceglia allegedly said in an e-mail. “You know perfectly well that you can’t just take a person’s investment and then spend it on women and beer or whatever you do up there in Harvard.”

Later, after Zuckerberg launched the site, he allegedly rejected Ceglia’s idea to sell college T-shirts and mugs on The Face Book, saying in a Feb. 6, 2004, e-mail: “I feel I must take creative control and I just cannot risk injuring my site’s reputation by cheapening it with your idea of selling college junk.”

Ceglia also claims that Zuckerberg hacked his StreetFax website “on multiple occasions,” changing the code and forcing it to shut down, when Ceglia refused to pay Zuckerberg more than they’d agreed for his work on the project.

On July 22, 2004, a week before Zuckerberg incorporated Facebook, Ceglia claims, Zuckerberg sent an e-mail wishing him happy birthday and offering to return $2,000.

“Another summer is here and I still don’t have any time to build our site, I understand that I promised I would, but other things have come up and I am out in California working during break,” Zuckerberg wrote, according to Ceglia.

The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).

To contact the reporter on this story: Bob Van Voris in U.S. District Court in Manhattan at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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