Facebook Cites ‘Smoking Gun’ Proof of Fraud by Man Claiming Company Stake

Facebook Inc. said its inspection of computers turned over by Paul Ceglia, the western New York man who claims he’s entitled to half of Chief Executive Officer Mark Zuckerberg’s holdings in the social-networking company, shows “smoking gun” evidence of fraud.

Ceglia sued Facebook and Zuckerberg last year, claiming that a two-page contract Zuckerberg signed in 2003 gave Ceglia half of the company when the service was started the following year. Palo Alto, California-based Facebook has grown to become the world’s biggest social-networking site.

U.S. Magistrate Judge Leslie Foschio in Buffalo, New York, last month ordered Ceglia to let Facebook run forensic tests on his computers, hard drives and electronic storage media, as well as on the contract and the e-mail he says support his claim.

“Defendants have uncovered smoking-gun evidence that the purported contract at the heart of this case is a fabrication,” Facebook said in its court filing late yesterday.

In a publicly filed version of the motion papers, Facebook, citing a confidentiality order in the case, didn’t identify the evidence it says was “embedded in the electronic data on Ceglia’s computer.”

Paul Argentieri, a lawyer for Ceglia, declined to comment on Facebook’s claim, citing Foschio’s July 13 confidentiality order.

$69.2 Billion

Facebook is valued at as much as $69.2 billion, according to Sharespost.com, an online marketplace for investments in companies that aren’t publicly traded.

Facebook’s “smoking gun” claim comes in the context of a court battle between the parties over the pretrial exchange of evidence in the case.

On July 1, Foschio entered several orders requiring Ceglia to turn over evidence for testing by Facebook after the company argued Ceglia’s case was a “fraud on the court.” Foschio also ordered Facebook to produce samples of Zuckerberg’s signature and 176 e-mails from Zuckerberg’s Harvard University e-mail account.

Both sides filed papers claiming the other side has failed to comply fully. Facebook also said Ceglia abused Foschio’s protective order by designating all 120 relevant items found on Ceglia’s computers, CDs and floppy disks as confidential. Facebook said it wants the “smoking gun” and other materials made public.

Foschio set a hearing on the matter for Aug. 17.

StreetFax

Zuckerberg worked for Ceglia in 2003, writing computer code for StreetFax.com, a failed company that Ceglia was setting up to sell photographs of streets and intersections to insurance companies and other clients. Zuckerberg claims he signed a contract with Ceglia for the StreetFax work. The contract had nothing to do with Facebook, according to Zuckerberg.

At a hearing in Buffalo June 30, Facebook lawyer Orin Snyder told Foschio that Zuckerberg no longer has his copy of the contract he signed with Ceglia.

In the papers filed yesterday, Facebook said that Ceglia, has moved from his home in Wellsville, New York, to Ireland. Ceglia, 38, said in an interview last year that he and his family lived in Ireland for six years when he was a child.

Argentieri declined to comment on Ceglia’s location.

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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