Man Claiming Half Ownership of Facebook Arrested on Fraud Charges

Paul Ceglia, would-be half-owner of Facebook, now faces fraud charges for filing a lawsuit against Facebook and Mark Zuckerberg.

A man claiming to own half of Facebook was arrested at his rural New York home Friday and charged with a multi-billion-dollar scheme to defraud the social-networking site and its chief executive and founder Mark Zuckerberg.

Paul Ceglia, of Wellsville, New York, filed a federal lawsuit in 2010, citing documents and a contract between him and Zuckerberg that promised him 50 percent of the social networking site.

Ceglia, a wood pellet salesman, is now accused of one count of mail fraud and one count of wire fraud (.pdf), the authorities said. Each count carries a maximum 20-year term.

Facebook has made it clear from the beginning that it believed the contract and e-mails that Ceglia has produced as evidence were fakes — and it even hired private investigators to dig up dirt on Ceglia’s none-too-sparkly past. Facebook told a federal judge that its forensic examiners proved that a 9-year-old contract Ceglia submitted to the court was “forged.” The analysis also claimed that 27 e-mails between Zuckerberg and Ceglia — some of which mention Facebook — were “fabricated” by Ceglia.

Zuckerberg has said all along that an authentic “Work for Hire” contract between the two involved another project. Ceglia had hired Zuckerberg to work on Ceglia’s StreetFax company nearly a decade ago, Zuckerberg claimed. Ceglia, however, alleges the contract also included fronting Zuckerberg $2,000 in exchange for half of Facebook when Zuckerberg was a Harvard University computer science student.

Federal authorities agreed with Zuckerberg and its forensic analysis conducted by Stroz Freidberg.

“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,” Manhattan U.S. attorney Preet Bharara said. “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.”

Facebook applauded the charges. “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 June, we asked Ceglia why he has churned through at least eight law firms in his legal quest to become Facebook’s co-owner. His e-mail reply: “What type of Corporate Duche [sic] wants to talk about lawyers when we just released expert reports that prove the contract and the emails are real?”

U.S. Magistrate Leslie Foschio, who was presiding over the Ceglia lawsuit, has fined Ceglia $97,000 in sanctions and costs associated with Ceglia breaching court orders compelling him to produce potentially damaging documents. The judge said the documents at issue “are relevant to the genuineness” of Ceglia’s claims.