The Laughable Facebook Lawsuit Has Suddenly Become an Armani Tuxedo

Oh, ‘The Social Network’. What a great film. I bet the studio wishes it could do a sequel to that bad boy – I know all of us moviegoers do. Well, while that doesn’t look anymore likely than it did before, there may be fodder for a prequel emerging. On June 30, 2010, disgraced businessman and convicted felon Paul Ceglia filed a lawsuit against Facebook and Mark Zuckerman claiming, in short, to own 84% of Facebook. After the world had a good chuckle, the case was all but forgotten. Well, he’s back with a new legal team and new evidence. And while the evidence is far from conclusive, nobody’s laughing anymore.

You really can’t blame anyone for not taking the initial lawsuit seriously. This kindly gentleman appears out of nowhere, stating the following:

  • He hired Zuckerberg in 2003, paying him $1,000 to write code for his company, StreetFax;

    Now THERE'S a face you can trust.

  • Zuckerberg then convinced him to invest another $1,000 to invest in Zuckergerg’s idea, ‘The Face Book’;
  • They agreed that Ceglia would in return receive a 50% share in the site;
  • Although he never rescinded his interests, Ceglia never saw any profits from the venture;
  • He forgot about the whole thing;
  • He only remembered when he came across the contract whilst looking through old files;
  • He was looking through said files in order to find assets with which to pay back individuals he and his wife had been convicted of defrauding.

Not the most believable story; not the first fella you’d take at his word. Oh, and by the way, the contract states that after January 1 2004, he gets an additional 1% stake for every day the project is not completed. The Face Book launched February 4, so that’ll be 84%, please and thank you.

Facebook, of course, dismissed the suit as frivolous. Lawyers openly admitted that the StreetFax agreement had indeed happened, but charged that the rest was fabricated and the documents had been doctored to include ‘The Face Book’. A convicted fraudster doctoring a legal document? Makes sense. There was little doubt in anybody’s mind that nothing more would be heard of the case until the short articles about an upstate New York man being tossed out of a disgusted judge’s court surfaced on the rear pages of business magazines.

And then last week happened.

The week had probably started off pretty well for Zuckerberg. A disgusted judge had thrown out a case against him – the Appeal Court ruled that the Winkelvoss twins would have to accept their initial $65m (now estimated at over $100m given stock worth) settlement agreement with Facebook. (They’ve requested another appeal a week later. Surprise.) But you know, he must have at least woken up Tuesday morning feeling pretty snazzy: “The birds are singing, I’m a billionaire, nobody’s actively suing me…ah, cripes.” Now I wouldn’t be at all surprised if on hearing the name ‘Ceglia’ he laughed it off and continued making paper planes out of hundred dollar bills. But the new evidence presented makes this new filing and the original case as similar as chalk and cheese.

The linchpin of the case, the contract, remains unchanged. The new evidence that has observers abuzz is the more than a dozen emails Ceglia claims were sent between himself and Zuckerberg between July 2003 and July 2004. If that time span seems familiar, it’s because it’s the exact time period in which Facebook was conceptualized and launched. The emails are available in full about the net, but here’s what you need to know:

  • Zuckerberg asks Ceglia if he (Ceglia) would be amenable to Zuckerberg using some of the code from the StreetFax site for The Face Book (which is also often referred to as ‘the Harvard site’.
  • They discuss at length ways to generate revenue from the site and the possibility of expanding to other universities.
  • Zuckerberg requests ‘another $1000′ and in a later e-mail discusses how the said money ‘really helped get us further ahead.’ Part of the reason for the rush: “a couple of upperclassmen here at Harvard that are planning to launch a site very similar to ours.”  Tyler and Cameron Winklevoss? Sounds like it.
  • Zuckerberg continues to ask for more money and a waiver on the January 1 deadline, after which Ceglia would aquire 1% more of the venture per day. Ceglia expresses hesitation at breaking the contract.
  • With continued delays and Ceglia’s increasing agitation, Zuckerberg asks that in lieu of the January 1 clause, they agree on a 50/50 split. Ceglia accepts, and suggests revenue streams such as college merchandise .
  • After the February 4 launch, an excited Ceglia starts talking about promotion. A suddenly frosty Zuckerberg informs him that he will not be “cheapening” the site by selling ‘college junk’ and thinks the site is “cool as it is.” He also accuses Ceglia of still owing him money for his work on StreetFax.com.
  • Zuckergerg ignores Ceglia’s angry reply for two months, then sends an e-mail saying he’s thinking of shutting down the site as he is too busy to work on it and “no one wants to pay for it.” This is of course in the spring of 2004 when it was becoming clear that thefacebook.com would be a huge success and Zuckerberg would have been virtually fighting off wanna-be investors. He offers to pay Ceglia back the $2000 and “call it even” on the money he says he’s still owed for StreetFax.
  • A week before the incorporation of Facebook, Zuckerberg sends a conciliatory e-mail to Ceglia. Apologizing for his actions, he offers again to pay back the $2000, “more if it will repair our business relationship.” He again represents that he doesn’t have time for their site, and mentions he’s “out in California working.” He fails to mention he’s working on the monster that will become Facebook.

It’s easy to see the stark contrast in believability between the previous filing of the case and this one.

Beyond being an intriguing read, the emails are entertaining due to poor grammar, atrocious spelling on Ceglia’s part, and amusing moments such as when Ceglia threatens to call Zuckergerg’s parents. The legal repercussions for Facebook’s founder, however, are anything but amusing if Ceglia can prove his case. His lawyers say that Zuckerberg never sent that $2000, and that Ceglia never relinquished his status as an investor. And while the e-mails now have him as a half owner of Zuckerberg’s Facebook stake rather than at 84%,  50% of $15 billion ain’t bad.

Facebook’s lawyers still dismiss the suit as balderdash. As expected, they say that the StreetFax part of the contract is genuine, and the Face Book clauses are an out and out fraud. The fact that Ceglia’s law firm, the international player DLA Piper, has repeatedly stated that after “due diligence” and “electronic analysis” of the contract they are convinced in the case’s veracity is telling to many. Many feel they would not risk their reputation on a trumped up case in such a high profile situation, no matter the potential winnings.

An excellent barometer for the atmosphere around the case right now is Business Insider writer Henry Blodget,  who broke the facts of the new developments and has been following the case from day one. He initially ran many derisive stories about Ceglia’s ludicrous case. On receiving the contract , however, his opinion changed to one of if Facebook could not conclusively prove the contract was fake and the statute of limitations had not expired, the company might want to consider settling. Now? Well, he maintains the previous view. But while he remains professionally impartial, and I’m not going to put words in his mouth, I can only ask you to see if you notice a difference in the tone of his latest article. And at the end of the day, only one question remains.

Which dashing Italian thespian is going to play Paul Ceglia in The Social Network 2: I bought Facebook for $2,000?

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