Feds charge Paul Ceglia with defrauding Facebook

The man who claimed ownership of half of Facebook is now in federal custody. Paul Ceglia was charged today in New York with single counts of mail and wire fraud. The maximum prison sentence for each count is 20 years.

Ceglia become known for his suit against Facebook CEO Mark Zuckerberg claiming that he was entitled to a 50 percent stake in the company. The charges against him filed by the U.S. Attorney's Office in Manhattan state that he falsified records and destroyed evidence in a multibillion-dollar scheme to defraud both Facebook and Zuckerberg.

Read the U.S. vs. Paul Ceglia Complaint

Ceglia filed suit against Zuckerberg in 2010, claiming that he and Zuckerberg, then a student at Harvard University, signed a contract in April 2003 which promised Ceglia a 50 percent stake in the fledgling web venture that was to become Facebook.

Ceglia included a two-page contract and emails between him and Zuckerberg as evidence of the agreement. Authorities now say, after a forensic examination of the evidence, that Ceglia simply falsified the first page of the contract and attached it to a second page containing both parties' signatures. The contract's date, April 28, 2003, also predates Zuckerberg's stated conception of the website.

Authorities also say Ceglia fabricated the emails between the two.

Below is the release from the U.S. Attorney's office:

Preet Bharara, United States Attorney for the Southern District of New York, and Randall C. Till, the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service ("USPIS"), announced today the unsealing of a Complaint charging PAUL CEGLIA with a multi-billion dollar scheme to defraud Facebook, Inc. and its Chief Executive Officer, Mark Zuckerberg. As alleged in the Complaint, CEGLIA filed a federal lawsuit falsely claiming to have been promised a 50% share in Facebook, and then doctored, fabricated, and destroyed evidence to support his false claim. CEGLIA was arrested this morning by federal agents at his home in Wellsville, New York, and will be presented at the federal courthouse in Buffalo this afternoon.

Manhattan U.S. Attorney Preet Bharara stated: "As alleged, by marching into federal court for a quick payday based on a blatant forgery, Paul Ceglia has bought himself another day in federal court for attempting a multi-billion dollar fraud against Facebook and its CEO. 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. That is always intolerable. Dressing up a fraud as a lawsuit does not immunize you from prosecution."

USPIS Inspector-in-Charge Randall C. Till said: "When Mr. Ceglia allegedly decided to take advantage of Mark Zuckerberg and Facebook, he underestimated the resolve of the Postal Inspection Service to bring him to justice for illegal use of the U.S. Mail."

The complaint carried the following allegations:

In April 2003, CEGLIA entered into a contract with Mark Zuckerberg, then a student at Harvard University, in which Zuckerberg agreed to perform certain programming work for CEGLIA and StreetFax.com, CEGLIA's online business. In the contract they signed in April 2003, CEGLIA agreed to pay Zuckerberg a fee for his work.

Years later, in April 2011, following an initial lawsuit in New York State court, CEGLIA, through counsel, filed a 25-page amended complaint in federal court in the Western District of New York claiming that Zuckerberg, in the April 2003 contract, had promised him at least a 50% interest in "The Face Book" project that ultimately became Facebook, Inc. In support of his claim, CEGLIA attached a copy of what he alleged to be the two-page April 28, 2003 contract between himself and Zuckerberg ("Alleged Contract"). The first page of the Alleged Contract contained language giving CEGLIA "a half interest (50%) in the software, programming language and business interests" derived from the expansion of "The Face Book" or "The Page Book." The second page of the Alleged Contract contained the signatures of CEGLIA and Zuckerberg. Also in support of his claim, CEGLIA described emails he alleged to have exchanged with Zuckerberg beween July 2003 and July 2004 via Zuckerberg's Harvard email account ("Purported Emails"). The Purported Emails reflected conversations between CEGLIA and Zuckerberg about the design and functionality of "The Face Book" website, as well as ways to generate income from its expansion. The Purported Emails also reflected conversations in which Zuckerberg offered CEGLIA money to "repair [their] business relationship."

As alleged in the Complaint, however, CEGLIA's claim to having a contractual right to 50% of Facebook was entirely false. CEGLIA simply replaced page one of the real contract with a new page one doctored to make it appear as though Zuckerberg had agreed to provide CEGLIA with an interest in Facebook. And CEGLIA doctored, fabricated and destroyed evidence to support his false claim. The evidence demonstrating CEGLIA's lawsuit is a fraud included the following:

A search of one of CEGLIA's hard drives uncovered a copy of the real April 28, 2003 contract, which CEGLIA had emailed to an attorney in March 2004, years before his lawsuit against Facebook and Zuckerberg ("Real Contract"). Page one of the Real Contract does not refer to Facebook in any fashion, let alone give CEGLIA a 50% interest in it.

The spacing, columns, and margins of page one of the Alleged Contract are different from the spacing, columns, and margins of page two of the Alleged Contract. No such differences exist as between the pages of the Real Contract.

A review of Harvard University's email servers reveals that none of the Purported Emails appears in Zuckerberg's email account as of February 2012. Further, none of the Purported Emails appears in Harvard's backup tapes for Zuckerberg's emails as they existed in October 2010, nor do any of the Purported Emails appear in Harvard's backup tapes for Zuckerberg's emails as they existed in November 2003. The emails between Zuckerberg and CEGLIA that do exist in Zuckerberg's email account do not show any discussion of Facebook and, contrary to Ceglia's claim, show that Zuckerberg was asking CEGLIA for money he was owed in 2004, not offering to give CEGLIA money.

A forensic expert examined CEGLIA's hard drives and other electronic media and found evidence that in February 2011, CEGLIA deleted files relating to the April 2003 contract with Zuckerberg and replaced them with new files that supported his lawsuit but that were backdated to make it appear as if those the files had in fact been created in 2003 and 2004. Further, a CD Rom revealed that CEGLIA had done test runs on fabricating some of the documents, including the Purported Emails, upon which his lawsuit relied.

Zuckerberg and another of Facebook's founders have said that the idea for Facebook did not arise until months after the April 2003 contract purportedly giving CEGLIA an interest in Facebook.

via BetaBeat