Face-off over Facebook
Investor says Zuckerberg sold him half the company for $1,000, and he has the emails to prove it. Stephen Foley investigates
Wednesday 13 April 2011
It is possible that David Fincher and Aaron Sorkin made the wrong movie. Their Oscar-winning portrayal of the early years of Facebook, The Social Network, focused on claims that nerdy Harvard undergraduate Mark Zuckerberg pinched the idea from a couple of strapping rowers called the Winklevoss twins, and dramatised the pair's long court fight to get a piece of the company.
But what if the biggest legal threat from Mr Zuckerberg's past turns out not to be Tyler and Cameron Winklevoss but a character that was never written into Mr Sorkin's screenplay? Can it really be true that Mr Zuckerberg stole half of Facebook from a small-time New York businessman called Paul Ceglia?
When Mr Ceglia made his sensational claim last year, few people took him seriously. But now – just as Mr Zuckerberg is celebrating an apparently final victory over the Winklevoss twins – he has emerged with a treasure trove of emails that he says prove his case: that Mr Zuckerberg signed away a 50 per cent interest in his idea for an online "face book" for students at Harvard and beyond, in return for $1,000 cash.
Facebook does not dispute that Mr Zuckerberg did some work for a firm Mr Ceglia was trying to start up back in 2003, a website called StreetFax that wanted to build a photo library of all the accident blackspots in the US for sale to car insurance loss adjusters. The 18-year-old Mr Zuckerberg answered a Craigslist ad appealing for web developers, according to the lawsuit. Mr Ceglia, though, says that the pair's business relationship went much deeper than just employer-contractor, and that Mr Ceglia agreed at the same time to invest in a project the young student was calling "The Face Book".
Liar, says Facebook.
On paper, Mr Ceglia doesn't win any awards for Person Most Likely to Persuade a Jury He Should Be a Billionaire. Before he sued Facebook, he was best known (and then only in his local area) for being accused of defrauding customers of his wood-pellet fuel business. He has a conviction for possession of hallucinogenic mushrooms. And he claims to have forgotten a contract that handed him half of the world's fastest growing company for a whole seven years, with Mr Zuckerberg's rise to world domination apparently not being enough to jog his memory.
Facebook, meanwhile, has kept on growing in size. Its latest valuation, based on private market share sales, is $55bn, but even last summer it was worth well into the billions and looked a plump target for scammers, particularly since it was clear The Social Network was going to paint a less-than-holy picture of Mark Zuckerberg for the general public.
The media noted Mr Ceglia's purported contract for work on StreetFax and "The Face Book", in which "it is agreed that Purchaser will own a half-interest (50 per cent) in the software, programming language and business interests derived from the expansion of that services to a larger audience". It noted, too, Facebook's rebuttal about the size of the margins looking suspiciously different from one page to the next. And then it focused back on the photogenic Winklevosses.
The Winklevii – as the fictional Mark Zuckerberg derisively calls them in The Social Network – settled their claim in 2008, for $65m, $45m of that in Facebook shares. But they wanted to back out of the settlement, saying Facebook misled them at the time about its finances.
Alex Kozinski, the judge, said no. "The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace," he wrote. "At some point, litigation must come to an end. That point has now been reached."
The twins beg to differ. They vowed yesterday to try to get the ruling overturned, but Mr Zuckerberg suddenly has much bigger worries. Mr Ceglia is claiming the Facebook founder should hand over half his wealth – plus damages.
On Monday Mr Ceglia's powerful new lawyers, the international legal firm DLA Piper, filed a new lawsuit stuffed full of quotes from that appear to corroborate the disputed contract. Facebook says that these emails, too, are faked. Orin Snyder, Mr Zuckerberg's lawyer, said: "This is a fraudulent lawsuit brought by a convicted felon, and we look forward to defending it in court." The email trail begins in July 2003, in which Mr Zuckerberg asks to use his development work on both StreetFax and "the Harvard site", and continues over the 1 January, 2004, that the disputed contract states is the deadline for launching The Face Book.
The purported contract says Mr Ceglia will get an extra 1 per cent ownership stake for every day it is late. It was over a month late launching, which is why Mr Ceglia last year claimed to own 84 per cent of the company, and in the emails he accuses Mr Zuckerberg of frittering away the investment on "women and beer, or whatever you do up there in Harvard". In a 3 February, 2004, email, Mr Ceglia says: "OK fine Mark 50/50 just as long as we start making some money from this thing."
The most potentially explosive purported emails are the latest: ones from April and July, in which Mr Zuckerberg says Facebook is going so poorly he is thinking of shutting it down, and offers to hand back $2,000 to Mr Ceglia. At the time, Facebook was actually enjoying explosive growth, Mr Zuckerberg was headed to Silicon Valley to work on it, and he shortly afterwards incorporated it as a formal company.
Mr Ceglia says Mr Zuckerberg plotted to relieve him of his rights over half of the company.
If the emails are proven to be fake, the full force of the criminal law could be used against Mr Ceglia for fraud and extortion, particularly now that his case has been elevated from the New York state courts to a federal level. If they turn out to be true, then the movie you have watched about Facebook and Mark Zuckerberg might have to be reshot.
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