New York entrepreneur arrested in fraud against Facebook

Saturday October 27, 2012

NEW YORK -- In 2010, a New York entrepreneur made an explosive legal claim: An agreement that he had with Facebook founder Mark Zuck erberg entitled him to a major stake in the social-networking giant.

Zuckerberg denied the allegation, and his lawyers insisted that the entrepreneur, Paul Ceglia, was a scam artist.

On Friday, federal authorities sided with Zuckerberg, arresting Ceglia and charging him with a multi-billion dollar scheme to defraud Facebook.

Prosecutors say that Ceglia, 39, of Wellsville, N.Y., filed a sham federal lawsuit claiming to have been promised a 50 percent share of Facebook, and then doctored, fabricated and destroyed evidence to support his allegations.

"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 U.S. attorney in Manhattan. "Dress ing up a fraud as a lawsuit does not immunize you from prosecution."

Ceglia’s lawyer, Dean Bo land, did not immediately return a telephone call seeking comment.

The improbable claims made by Ceglia received outsized attention in part because it came at around the same time as the release of "The Social Network," the Academy Award-winning film that told the tale of Zuckerberg’s legal battle with his Harvard schoolmates, the Winklevoss twins, over the origins of Facebook. Zuckerberg paid the Winkle vosses at least $65 million to settle their case.

Since the lawsuit was first filed, Facebook’s lawyers have raised questions about Ceglia’s credibility. In 1997, he 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.

Ceglia’s alleged plot dates to 2003, when Zuckerberg was a student at Harvard. Ceglia had placed an advertisement on Craigslist looking for a programmer for an Internet business he was trying to get off the ground. Zuckerberg responded to the ad, and Ceglia agreed to pay him $1,000 for his work.

Months later, in his college dorm room, Zuckerberg started a business called Facebook.

Zuckerberg did not hear from Ceglia again until 2010, when he was served with a complaint that claimed Ceglia was entitled to an 84 percent ownership stake in Facebook.

According to the lawsuit, 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 Ceglia an interest in Zuckerberg’s startup. The filing also included email exchanges between Ceglia and Zuckerberg that purported to show their collaborating on ideas for the social networking business.

Federal prosecutors say that Ceglia’s claims were entirely false. Government investigators searched Ceglia’s hard drive and discovered the original contract, which had no reference to Facebook.


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