Facebook Says Ceglia Fraud Is Proven by ‘Authentic Contract’ Sent in 2004

Paul Ceglia, the western New York man claiming part-ownership of Facebook Inc., e-mailed the “authentic contract” disproving his claim to a law firm in 2004, a lawyer for the company told a judge.

Orin Snyder told U.S. Magistrate Judge Leslie Foschio in a four-hour hearing in Buffalo, New York, yesterday that Ceglia sent the contract, which made no mention of Facebook, to a lawyer at the firm Sidley Austin LLP the year after Ceglia claims he signed a contract with Facebook co-founder Mark Zuckerberg giving him an equal share in the company.

The contract, which is headed “STREET FAX,” was found both on Ceglia’s computer and Sidley Austin’s e-mail server, Snyder told Foschio. Snyder said the evidence proves Ceglia fabricated the contract on which he bases his claim.

“The noose is tightening around the neck of the plaintiff in this case and he knows it,” Snyder told Foschio.

A court filing by Facebook contains blurry image of the claimed authentic contract, dated April 28, 2003. It appears to include the signatures of Zuckerberg and Ceglia and a handwritten addition to the contract’s terms. The document was discovered by the computer forensics firm Stroz Friedberg LLC, Facebook said.

Ceglia’s Contract

Ceglia’s lawyer, Jeffrey Lake, said the contract attached to Ceglia’s complaint, titled “‘WORK FOR HIRE’ CONTRACT,” is the genuine one. Ceglia’s version of the contract includes terms giving him a share of “The Face Book” in exchange for a $1,000 investment, in addition to terms referring to Zuckerberg’s StreetFax work.

Foschio set yesterday’s hearing to consider disputes between the two sides over the exchange of evidence in the case.

Foschio said Ceglia must submit an explanation for why he is unable to find five removable computer data storage devices that, according to Facebook’s experts, contained documents with names that include “Zuckerberg Contract page1.tif” and a folder named “Facebook Files.”

Foschio also said Ceglia must allow Facebook’s experts to examine his Web-based e-mail accounts, which he said he used to communicate with Zuckerberg in 2003 and 2004, before Zuckerberg will be required to turn over 175 e-mails from his Harvard University account. Ceglia claimed he copied e-mails with Zuckerberg from his Web-based accounts into word-processing documents he saved on floppy disks.

Facebook said the Harvard e-mails involve Zuckerberg and Ceglia and others at StreetFax.com, Ceglia’s former company.

Facebook Code

After the hearing, Lake said he plans to demand computers, e-mails and instant messages from Zuckerberg, in addition to early computer code for the site. Ceglia claims Zuckerberg used code from StreetFax in building Facebook.

Closely held Facebook, based in Palo Alto, California, may be valued at $69.2 billion, according to Sharespost.com, which tracks investments in non-public companies.

Snyder said Stroz Friedberg recovered information from Ceglia’s computer showing he e-mailed the “Street Fax” contract to Chicago-based Sidley Austin in March 2004. Foschio granted Snyder’s request to subpoena evidence of the e-mail and contract from Sidley Austin’s computers.

Janet Zagorin, a spokeswoman for Sidley Austin, had no immediate comment.

Foschio also approved Facebook’s request that Ceglia turn over three-dimensional images of the “Work for Hire” contract. Snyder said he believes Ceglia may have altered the document after his experts made the images.

Ceglia’s Claim

Ceglia, 38, filed the suit in New York state court last year, claiming 84 percent of Facebook, citing the language of the “work for hire” contract he claimed he signed with Zuckerberg in 2003. Facebook transferred the case to federal court. Ceglia, who lives in Wellsville, New York, is now in Ireland. Lake declined to say why Ceglia is in Ireland and how long he plans to stay.

Lake told Foschio that Facebook has orchestrated an “extremely prejudicial” campaign to smear Ceglia’s reputation and unfairly prejudice potential jurors against the case.

Zuckerberg said in a statement filed in the case that when he was a freshman at Harvard in 2003, he worked for Ceglia. Zuckerberg said he did computer coding for StreetFax and never made any agreement with Ceglia concerning Facebook. Ceglia paid Zuckerberg $9,000 for the work and owed him more, which he never paid, Snyder told Foschio in a hearing in June.

In April, Ceglia filed an amended complaint in the case, which quoted alleged e-mails between him and Zuckerberg from 2003 and 2004. The new complaint reduced Ceglia’s demand from 84 percent of Facebook to half of Zuckerberg’s holdings in the company.

Near the end of the hearing, Lake said the parties should enter court-supervised mediation to determine whether a settlement is possible in the case.

“We have no interest in mediating or settling this case, period,” Snyder said.

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 Buffalo, New York at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net

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