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Feds arrest Paul Ceglia over Facebook ownership claims

Gumshoes go all Al Capone on alleged fraudster

Internet Security Threat Report 2014

A wannabe billionaire who claimed to own 84 per cent of Facebook based on a contract Mark Zuckerberg signed as a student has been arrested and charged with fraud.

Paul Ceglia was arrested after being indicted for two counts of fraud: one case of postal fraud and one of wire fraud. If found guilty he faces a possible 40 years behind bars, giving him the opportunity to make lots of new friends.

In 2010, Ceglia began a legal challenge to Facebook, asserting that he had a contract with Zuckerberg, signed while the latter was a student at Harvard, giving him 50 per cent of the social networking giant in exchange for a $1,000 investment. Ceglia's contract also specified that he would get more of the company if Zuckerberg was late to get code out.

In his initial legal filing, Ceglia claimed 84 per cent of Facebook, although later he amended this in the spirit of compromise to claim just the original 50 per cent. While Zuckerberg admitted to having worked for Ceglia on a project called StreetFax, he strongly denied signing over any of Facebook, calling the case a "brazen and outrageous fraud on the court".

According to the indictment, this appears to be the case. The court found that Ceglia had used part of the StreetFax contract with Zuckerberg for evidence, replacing one of the pages with a new sheet of paper outlining his claim on Facebook. An examination of the document showed the two pages had different line and margin spacing, as well as inconsistencies in formatting.

Ceglia had also sought to bolster his case with emails, which he claimed showed Zuckerberg was aware of the contract. Investigators found that emails that purported to be from 2003 were in fact created in 2011 and then altered to make it look older by editing metadata. None of the emails claiming to mention Ceglia's involvement in Facebook were found in Harvard University's backup tapes.

Ceglia's claims have been treated with suspicion right from the start. He claimed to have only found the contract recently, coincidently just as the buzz about Facebook going public for billions was ramping up. Yet if he knew such a contract existed with the poster child of the social networking industry, one would have thought he'd have done some checking before 2010.

He also has a record of less-then-honorable behavior. In 2009, the New York Attorney General took out a restraining order against Ceglia's wood pellet fuel company for failing to deliver supplies to its customers while taking their money. True, people can change and become law-abiding characters, but this should have raised some eyebrows.

Nevertheless, Ceglia found lawyers willing to take up his case. His first team, from the well-respected firm DLA Piper, took him on, saying it had checked the evidence and was convinced. After Piper dropped him, Ceglia went through a string of legal advisors who either dumped or fell out with him.

Ceglia's case against Facebook now appears to be over, but it's a pretty savage indictment of the American legal system that he was able to make such a fuss based on such shoddy evidence and past character. ®

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