Facebook claimant to face fraud charges

US businessman who sued Mark Zuckerberg fails in attempt to throw out forgery case

PUBLISHED : Sunday, 09 March, 2014, 6:22am
UPDATED : Sunday, 09 March, 2014, 6:22am

A New York businessman must face criminal fraud charges for trying to claim a billion-dollar stake in social media company Facebook, a US federal judge ruled.

Paul Ceglia, 40, is accused of forging a 2003 contract with Facebook CEO Mark Zuckerberg that supposedly entitled him to part ownership of the company.

After a hearing in New York on Friday, district judge Andrew Carter rejected Ceglia's request to throw out the charges, finding he had failed to meet the "high standard" needed to dismiss a grand jury indictment.

Ceglia sued Zuckerberg and Facebook in 2010 in a federal court in Buffalo, New York, claiming that he and Zuckerberg had signed a contract while Zuckerberg was a first-year student at Harvard University for Ceglia to invest US$1,000 in a planned social networking website.

Zuckerberg had previously done some programming work for Ceglia's company, Facebook has argued that the only contract between the pair was related to that company and accused Ceglia of faking documents as part of his lawsuit.

Last year, a magistrate judge in Buffalo recommended that Ceglia's lawsuit be dismissed, finding it "highly probable and reasonably certain" that the contract was fabricated. The federal judge overseeing the case has yet to rule on the recommendation.

Prosecutors in New York charged Ceglia in 2012, accusing him of forging documents as part of the Buffalo litigation.

Ceglia has since filed a separate lawsuit against Manhattan attorney Preet Bharara, whose office is prosecuting Ceglia, and attorney general Eric Holder seeking to halt the criminal case.

On Friday, Ceglia's defence lawyer David Patton argued that the government should be barred from prosecuting him for allegations he made in the context of a civil lawsuit, warning that it could discourage litigants from filing claims. He also said the government's allegations did not constitute criminal fraud under federal law.

"They're alleging that it's simply a phony, sham litigation," Patton said. "That's not fraud."

Carter said the indictment was sufficient to move ahead, though he said he would consider Patton's arguments at a later date if the case went to trial.

After the hearing, Ceglia vowed to press forward with his claims against Facebook, while his civil attorney, Joseph Alioto, said they would prove the Zuckerberg contract was legitimate.

Ceglia's lawsuit created a bizarre backdrop as Facebook headed towards its initial public offering last May. Facebook's origins were also the subject of a separate legal challenge by Zuckerberg's Harvard classmates, that was chronicled in the 2010 film The Social Network.