The black marks: Zuckerberg’s legal legacy

As with most semi-biographical films, The Social Network convinces many who watch it that they develop a comprehensive knowledge of its subject matter, in this case the origins of Facebook and its founder’s misdeeds.

As well researched a movie as it was, there is more to the litigation surrounding these two then what was included in David Fincher’s chronicle. So, in order to level the playing field, this is all the dirt we know about the man who created the system that knows all the dirt about us.

The metaphorical photo album that Zuckerberg would surely want to un-tag himself in. All in one place, Zuckerberg’s wall of shame:

The Winklevii and Dvya Narendra

As seen in the film, the Winkelvoss twins, Tyler and Cameron, along with partner Dvya Narendra, were Harvard students that hired Mark Zuckerberg to work on their Harvard based social network called HarvardConnection (later renamed ConnectU).

Zuckerberg was recommended to them by their previous coder, Victor Gao.

They allege that Zuckerberg entered into an oral agreement with them to become a partner in HarvardConnection, with equity as his reward for his work. During the weeks before the TheFacebook’s launch (the precursor to Facebook as we know it), Zuckerberg maintained via email that he was still working on HarvardConnection, but avoided meeting with the team, claiming he was swamped with work.

He neglected to mention he was working on a competitor project. Leaving the Harvard Connection code incomplete and non-functional, Zuckerberg launched thefacebook.com on the 4th February 2004. On the 10th of February, the team sent Zuckerberg a cease and desist letter and complained through Harvard administration. Harvard judged the matter to be outside their jurisdiction and advised them to pursue the matter in court.

Later that year, ConnectU took Mark Zuckerberg to court and Facebook counter-sued (concerning spam infringements on another Winklevoss project: Social Butterfly). With the leaked instant messages and emails as evidence, the case was settled in February of 2008, with a reported US$65 million (US$20 million cash, and 1.25 million shares) settlement.

ConnectU later accused Facebook of misrepresenting the value of its stocks (affecting the settlement). Of course, by this time the valuation of Facebook had changed significantly, but judge Alex Kozinski ruled that the litigation must come to an end. Eventually in June 2011 it finally did when the Winklevoss lawyer announced that they would not pursue the case in the Supreme Court.

However, as reported by the BBC, days after their lawyer’s announcement, the twins filed a fresh lawsuit against Facebook, this time claiming, “intentionally or inadvertently suppressed evidence” in the previous lawsuit.

Eduardo Saverin

A clash with Facebook co-founder Eduardo Saverin, as the honourable, and perhaps a bit naive best friend of Zuckerberg, is the other lawsuit represented in The Social Network.

Saverin provided the initial start-up capital for thefacebook, becoming CFO and business manager in the process.

Originally owning a third stake, Saverin found his influence and involvement fading when thefacebook relocated its operations to California and attracted outside investors like Peter Thiel (PayPal) and Sean Parker (Napster).

Considering that he served as Ben Mezrich’s principal consultant in the writing of his book The Accidental Billionaires, which serves as the base for the film’s screenplay, it is fairly safe to assume that it represents his side of the story.

Based on differences in opinions about thefacebook’s direction and the growing distance between them, Zuckerberg effectively screwed Saverin over by diluting his shares.

Saverin’s lawsuit was settled out of court in 2008 for what is reported to be 5 percent of Facebook, helping him to an estimated net worth of upwards of US$1.6 billion.

Recently Saverin seems to be keeping his head down, in Singapore. And from every source I’ve read, it seems accusations of him being a nice guy and honourable businessman are true.

Paul Ceglia

We now move out of the realm of the movie, and onto more recent events. Paul Ceglia is the guy who claimed Mark Zuckerberg had sold him half of what became Facebook.

From the beginning, there were doubts to the authenticity of his claim, seeing as Ceglia himself has a drug arrest, a fraud conviction and character witnesses have not bee too flattering. Of course, on the other hand, Zuckerberg has a history of screwing over investors and partners.

In June 2010, Ceglia filed a lawsuit claiming 84 percent ownership of Facebook, which he says Zuckerberg sold to him for US$1 000 in 2003. The reason for the seven year wait? Ceglia claims he forgot about the contract and only found it when going through papers for his fraud trial, which is in itself a bit dubious.

One would imagine remembering that contract when hearing about Facebook’s incredible rise to prominence.

Ceglia alleges that the US$1 000 bought him 50 percent + 1 percent for every day that Facebook wasn’t completed after the beginning of 2004.

Zuckerberg admits to building a website, StreetFax, for Ceglia, but denies that he was involved in the creation of Facebook or gave any money to its cause.

Ceglia’s evidence consisted of a cancelled cheque to Mark Zuckerberg for US$3 000, emails between the two and the contract itself which Facebook’s lawyers have claimed are fabricated (with much expert testimony, including linguistics analysis).

Facebook’s lawyers also hired a private investigating firm, Kroll, to research Ceglia. Aside from his fraud charge, on his Wood Pellet company which neglected to deliver wood pellets that he had already accepted payment for, Kroll also discovered a list of other examples of fraud:
● He attempted to sell a Florida Orange Grove that he didn’t own.
● He sold Florida land on eBay, which he claimed were buildable, that were later declared worthless.
● He engaged in shill bidding to drive these prices up
● He forged government documents to aid these sales
● He sold land in New York that he didn’t own
● etc.

When Zuckerberg’s emails from the time were investigated, none of the emails that would prove Ceglia’s case were found amongst their correspondence. This would mean that Zuckerberg would have had to specifically delete only those emails, at the time. Furthermore, they found emails indicating that Ceglia had owed Zuckerberg US$11 000 with regards to StreetFax.

Last month, on the 29th of June 2011, Ceglia’s lawyers, DLA Piper, abandoned his case, although another, Lake APC, took up his cause.

The case is ongoing, which is a problem for Facebook going public. Nevertheless it looks like this one has little to stand on. From an outside view it looks like a career conman is trying his luck, perhaps hoping for a settlement just ‘to make him go away’. This is something that it appears Facebook will not do.

Draw Muhammed Content

Almost as a side note, in May 2010 Pakistani Deputy Attorney General Muhammad Azhar Sidiqque called for Zuckerberg and the 2 other co-founders to be arrested for blasphemy because of a Draw Muhammed contest hosted on Facebook. The contest was pulled from Facebook at the end of that month, but no real litigation ever emerged.

In the end

It would seem that only the litigation referenced in The Social Network has any real basis to it. Subsequent lawsuits are frivolous or fraudulent. But there you go, that’s Mark Zuckerberg’s legal history. The black marks on his chequered past.