April 19, 2011
As much of a legal mess as Facebook’s beginnings have been, a lawsuit filed last year suggests it was even messier.
For those who haven’t followed the story, Paul Ceglia, a New York businessman, claims that he entered into a legal partnership with Mark Zuckerberg in 2003 for the purpose of creating the social networking website that eventually became Facebook.
However, the only evidence Ceglia had to show to support this claim is a “work for hire” contract that both Zuckerberg and a Facebook representative have claimed is forged.
Now, Ceglia just recently amended his complaint with some supposedly leaked emails that strongly corroborate his earlier claims.
Specifically, that Zuckerberg’s ownership in Facebook is actually the property of the partnership, a separate legal entity of which Ceglia owns 50%.
From the emails, it appears that Ceglia’s role was mainly limited to funding, which didn’t really amount to much ($2,000).
Irrespective of Ceglia’s limited hand in creating Facebook, if his claims are true, he may well be entitled to half of Zuckerberg’s Facebook fortune, not to mention half of his share of company stock.
He was charged of defrauding over $200,000 from customers of his business in 2009, which, he claims, was how he discovered the contract with Zuckerberg to begin with.
In addition, he was convicted for possession of illegal mushrooms in 1997.
Aside from his credibility issues, Ceglia has some statute of limitation issues. In New York, the statute of limitations is only six years.
Ceglia claims that the major defrauding took place as late as early to mid 2004, and the claim was filed in early July 2010. That timeframe doesn’t completely kill Ceglia’s case, but it doesn’t make it any easier to win.
The timing issue here seems relevant beyond the statute of limitations.
While it’s possible that Ceglia “forgot” about his contract with Zuckerberg until recently, it just seems too coincidental.
Is Ceglia’s memory really that bad that he would completely forget the names “Mark Zuckerberg” and “Facebook” almost immediately after he stopped communicating? And then suddenly remember the contract once he owed $200k?
Possibly, but that is yet another credibility issue against Ceglia should the case proceed to trial.
In fact, in Ceglia’s amended complaint, he changes his claim of ownership of the partnership down to 50% from the originally claimed 84%.
Why? Because the emails show Ceglia’s waiver of penalty provisions that allowed him an additional 34% share.
So it may be possible that he forgot, especially considering his “magic mushroom” conviction.
Despite all of the holes in his case, the stakes may be too high for Facebook or Zuckerberg to risk an adverse verdict, especially with the introduction of these emails.
If Ceglia were to prevail, he would be entitled to half of Zuckerberg’s Facebook shares, in addition to any capital Zuckerberg earned from Facebook.
More likely than not, this will get settled, regardless of the veracity of Ceglia’s claims.
If they are true, it should at least serve as another important lesson to Zuckerberg: closely mind the legal consequences of everything you do.