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U.S. Attorney Arrests Paul Ceglia for Multibillion-Dollar Scheme to Defraud Facebook

Nobody expects the U.S. Postal Service!
ceglia U.S. Attorney Arrests Paul Ceglia for Multibillion Dollar Scheme to Defraud Facebook

Illustration by David Saracino.

For years, Facebook’s lawyers have been arguing that Paul Ceglia’s claim to at least half of Facebook was baseless. Even federal judges have been moved to strong language by Mr. Ceglia’s lawsuit, which offered up a Microsoft Word document of cut-and-pasted emails between him and Mark Zuckerberg as proof that he helped fund Mr. Zuckerberg’s work in the early days of development and was therefore entitled to a share of Facebook.

Today, Manhattan U.S. Attorney Preet Bharara has come out with a surprising complaint that screams “Team Zuck.” In the complaint, the U.S. Attorney’s office has charged Mr. Ceglia with an attempt to con Facebook to the tune of several billion dollars. Mr. Ceglia, 39, was arrested in Wellsville, N.Y., this morning on one count of mail fraud and one count of wire fraud. Each count carries a maximum sentence of 20 years in prison.

This isn’t Mr. Ceglia’s first brush with the law. In our profile of Mr. Ceglia, we covered his 2009 arrests on grand larceny charges related to his wood pellets company, which was shut down by the attorney general. In the Facebook case, the involvement of the U.S. Attorney’s office appears to be triggered by what Mr. Bharara calls “an attempted corruption of our legal system through the manufacture of false evidence.” The mail fraud charge comes from his sending those forged documents via the post office, and the wire fraud charge relates to his accused email fakery.

On the count of wire fraud, the complaint claims that Mr. Ceglia, having devised his scheme, “did transmit and cause to be transmitted by means of wire communication in interstate and foreign commerce, writings, signs, signals, pictures, and sounds for the purposes of executing such scheme and artifice.” On the count of mail fraud, it also says Mr. Ceglia “would and did place and cause to be placed in a post office and authorized depository for mail matter, matters and things to be sent and delivered by the Postal Service” that were, in short, total bunk.

In today’s press release, U.S. Postal Inspection Service Inspector-in-Charge Randall C. Till added: “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.”

Facebook also offered a statement to Betabeat through its attorney, Orin Snyder, a partner at Gibson Dunn: “We commend the United States Attorney for charging Ceglia with federal crimes in connection with his fraudulent lawsuit against Facebook. Ceglia used the federal court system to perpetuate his fraud and will now be held accountable for his criminal scheme.”

This is breaking news, and we’ll update as we learn more details. For now, here’s the the press release from Mr. Bharara’s office, and the complaint is below:

MANHATTAN U.S. ATTORNEY ANNOUNCES CHARGES AGAINST ONLINE BUSINESSMAN FOR MULTI-BILLION DOLLAR SCHEME TO DEFRAUD FACEBOOK, INC. AND ITS CEO

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.”

According to the allegations in the Complaint unsealed today in Manhattan federal court:

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.

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CEGLIA, 39, of Wellsville, New York, is charged with one count of mail fraud and one count of wire fraud. Each count carries a maximum sentence of 20 years in prison.

Mr. Bharara praised the investigative efforts of USPIS.

The criminal case is being prosecuted by the Office’s Complex Frauds Unit. Assistant United States Attorneys Janis Echenberg and Christopher D. Frey are in charge of the prosecution.

The charges contained in the Complaint are merely allegations and the defendant is presumed innocent unless and until proven guilty.

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Check out our profile: Paul Ceglia: The Man Who Would Have Facebook