A man claiming 84 percent ownership of Facebook has filed an amended complaint that contains what he says are emails from Facebook chief Mark Zuckerberg, admitting to the ownership deal.
The emails actually read like a deleted scene from "The Social Network." According to the messages presented by Paul Ceglia, Zuckerberg successfully secured funds from Ceglia for what was then known as "The Facebook," but then argued that Ceglia should have a lower ownership stake in the company because Zuckerberg had done all the work. Ceglia agreed, but Zuckerberg then told him that the site was not really going anywhere and offered to refund Ceglia's money and just call the whole thing off. Meanwhile, Facebook had become wildly popular at Harvard and Zuckerberg had secure venture capital funding for the project, something Ceglia said Zuckerberg never disclosed.
Not surprisingly, the emails between the two men devolved into Ceglia threatening to call Zuckerberg's parents and Zuckerberg insisting that he should be paid even more for his efforts.
Facebook lawyer Orin Snyder, meanwhile, said "this is a fraudulent lawsuit brought by a convicted felon, and we look forward to defending it in court. From the outset, we've said that this scam artist's claims are ridiculous and this newest complaint is no better."
Who is Paul Ceglia? In 2003, he hired Zuckerberg to do coding work for a company called StreetFax. Ceglia said Zuckerberg then persuaded Ceglia to invest in Facebook—$1,000 for a 50 percent stake in the company, plus an extra 1 percent stake for every day Facebook was not online past January 1, 2004.
Ceglia's filing includes a July 2003 email from Zuckerberg in which Zuckerberg asks Ceglia for permission to use StreetFax source code for Facebook's search engine. A followup email also proposed charging alumni $29.95 per month to use the site. Ceglia responded that it will probably be hard to get people to sign up and suggests they "make it free until it was popular and then start charging." In the meantime, Ceglia suggested setting up a licensing agreement with Harvard to school items like sweatshirts and mugs.
Ceglia handed over an additional $1,000 in November 2003 and days later Zuckerberg sent him an email labeled "urgent" that discussed the need to move on "The Facebook" immediately.
"I have recently met with a couple of upperclassmen here at Harvard that are planning to launch a site very similar to ours. If we don't make a move soon, I think we will lose the advantage we would have if we release before them," Zuckerberg wrote. "I've stalled them for the time being and with a break if you could send another $1000 for the facebook (sic) project it would allow me to pay my roommate or Jeff to help integrate the search code and get the site live before them."
Those upperclassmen are no doubt the Winkelvoss twins, who secured a $65 million settlement from Facebook in 2008 after they claimed that they were the true brains behind Facebook. Just this week, a judge shut down an appeal to overturn that settlement.
Ceglia agreed, but by the New Year, the site was still offline. Zuckerberg again requested more money, but then argued that their deal for a 1 percent stake for every day past January 1 was unfair, and requested a written waiver exempting Zuckerberg from the contract.
Click here for more: Zuckerberg Breaks Away
Zuckerberg Breaks Away
"I think it is unnecessary at this point, with all of the extra work I have done for you, to hold me to the original completion date," Zuckerberg wrote. "I should not be penalized for delays that were out of my control, namely that there have been so many unspecified requests from the Streetfax project that you wanted to be placed as a priority, thereby delaying my start on our second project."
Ceglia questioned just how much work Zuckerberg put into the StreetFax project and said he was "somewhat torn" on the waiver request. By January 5, however, Ceglia was annoyed that The Facebook was still offline and threatened to call Zuckerberg's parents.
"You know perfectly well that you can't just take a persons (sic) investment and then spend it on women and beer or whatever you do up there in Harvard," Ceglia wrote.
Zuckerberg said threats to call his parents were "uncalled for and unprofessional" and said they would "probably just laugh you off anyway."
Nonetheless, the duo kept working together. On February 2, Zuckerberg sent Ceglia an email in which he admitted to the original deal but again asked that it be altered.
"According to our contract I owe you over 30 percent more of the business in late penalties which would give you over 80 percent of the company," Zuckerberg wrote. "First I want to say that I think that is completely unfair because I did so much extra work for you on your site that caused those delays in the first place and second I don't even think it is legal to charge such a huge penalty. Mostly though I just won't even bother putting the site live if you are going to insist on such a large percentage. I'd like to suggest that you drop the penalty completely and that we officially return to 50/50 ownership."
Ceglia agreed to the 50-50 deal, and a day later Facebook went live. Ceglia's lawyers contend that Zuckerberg intentionally waited until he got Ceglia to agree to a diluted interest in the company before putting the site live.
By February 6, Zuckerberg emailed Ceglia to tell him that "I feel I must take creative control."
"I just can not risk injuring my sites (sic) reputation by cheapening it with your idea of selling college junk, nor do I wish to spend my time shipping out coffee mugs to rich alumni," he continued. "The site is cool as it is and I don't care about making any money on it right now, I just want to see if people will use it."
He concluded by saying that if Ceglia had paid him for all the work he did on StreetFax, Zuckerberg wouldn't even have to rely on Facebook for income. Ceglia responded that Zuckerberg had a lot of "nerve" but still suggested that the two explore advertising options if Zuckerberg was opposed to selling merchandise.
By April, Zuckerberg said he was too busy to deal with the site and offered to pay Ceglia $2,000 and "call it even" on the rest of the investment. In actuality, Ceglia said, Facebook was getting a lot of attention from students and investors alike, and "Zuckerberg was intentionally attempting to sour their business relationship in order to convince Ceglia to abandon it."
Ceglia responded by accusing Zuckerberg of "criminal stunts," which his lawyers claim involved Zuckerberg hacking into StreetFax.com and altering the code to make the site inoperable.
In July, Zuckerberg emailed Ceglia and again offered to pay him $2,000 "for your trouble, [and] more if it will repair our business relationship." He said he was in California working during his summer break, but Ceglia contended he was out there about to receive significant funding for Facebook.
Ceglia didn't actually take any legal action on the matter, however, until last year, and he told Bloomberg that he probably would have forgotten all about it had he not been arrested for fraud. Ceglia said he only unearthed the alleged contract while trying to hunt down assets to pay customers of a failed wool-pellet business.
Last year, Facebook said, "we believe this suit is completely frivolous and we will fight it vigorously." During an interview with Diane Sawyer, Zuckerberg also said, "I think we were quite sure that we did not sign a contract that says they have any right to ownership over Facebook."
Editor's Note: This story was updated at 1pm Eastern with comment from Facebook.