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Man suing Facebook arrested, accused of scheme to defraud company

By Jessica Guynn, Los Angeles Times –

Federal charges that New York businessman Paul Ceglia engaged in a multimillion-dollar scheme to defraud Facebook Inc. and its founder could bring to a close a long-running contentious legal battle over the origins of the social networking giant.

Ceglia, 39, who for years contended he was entitled to half of Mark Zuckerberg’s stake in Facebook, was arrested at his Wellsville, N.Y., home Friday on suspicion of mail and wire fraud. He appeared in a federal court hearing in Buffalo in the afternoon. A federal judge set bail at $21,000 but stayed the order until Monday to allow the opportunity for an appeal.

An investigation by the U.S. Postal Inspection Service determined that Ceglia had doctored, fabricated and destroyed evidence to support allegations in the lawsuit he filed against Facebook and Zuckerberg in 2010, according to a complaint unsealed Friday.

Manhattan U.S. Attorney Preet Bharara accused Ceglia of seeking a “quick payday” and attempting a “massive fraud” and “corruption of our legal system.”

Zuckerberg agreed in 2003 to perform programming work for Ceglia’s business to earn money while he was a Harvard University student. Facebook denied that Zuckerberg gave Ceglia a 50 percent stake in Facebook in exchange for $1,000 in startup money. Facebook launched in 2004. Facebook has asked the federal judge in Buffalo to dismiss Ceglia’s case.

Dean Boland, who has been representing Ceglia in his lawsuit against Facebook, could not be reached for comment. It was unclear who would represent Ceglia in court.

“Ceglia used the federal court system to perpetuate his fraud and will now be held accountable for his criminal scheme,” Facebook attorney Orin Snyder said in an emailed statement.

Federal investigators allege Ceglia replaced the first page of the real contract he signed with Zuckerberg with another page that was made to look as if Zuckerberg had agreed to give him a stake in Facebook. According to the complaint, a search of Ceglia’s computer hard drive uncovered the authentic April 28, 2003, contract. Investigators also said Ceglia fabricated emails he said he exchanged with Zuckerberg.

If convicted on one count of mail fraud and one count of wire fraud, Ceglia could face up to 40 years in prison.

“Now Facebook essentially has the prosecutors doing their work for them,” Brooklyn Law School professor James Fanto said. “These are experienced prosecutors who are going forward with this case. It doesn’t look good for Paul Ceglia. This case supports what Facebook has been saying.”

Legal experts say disputes about the origins of companies are common.

For years, Zuckerberg battled allegations from fellow Harvard alumni Cameron and Tyler Winklevoss that they, not Zuckerberg, came up with the idea for Facebook. Ceglia was yet another person making claims to the billions in wealth created by Facebook, which went public in May.

Ceglia’s allegations were met with skepticism because of his checkered past, which included a conviction for possession of hallucinogenic mushrooms in 1997 and fraud allegations involving his wood-pellet business. Further doubt was cast by the revolving door of lawyers Ceglia hired to represent him in the lawsuit against Facebook.

Facebook repeatedly attacked Ceglia’s credibility, calling him a “scam artist” and saying his lawsuit was “fraudulent.” It also contested the authenticity of the emails and the contract.

Ceglia contended he had forgotten about the contract with Zuckerberg until he discovered it in some old files. He was looking through the files after he was arrested and was being pursued for fraud by then-New York Attorney General Andrew Cuomo, who was investigating his wood-pellet business, which had not delivered pellets to customers who had paid for them. Ceglia filed his original complaint in 2010, alleging that he gave Zuckerberg money to develop a social networking site in exchange for an ownership stake.

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