New York businessman faces fraud charges for attempting to sue Facebook

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New York businessman faces fraud charges for attempting to sue Facebook
Paul Ceglia, indicted on charges of mail fraud and wire fraud, exits federal court in New York, U.S., on Wednesday, Nov. 28, 2012. Ceglia, 39, pleaded not guilty to criminal charges that he faked evidence in his contract lawsuit against Facebook Inc. and its chief executive officer, Mark Zuckerberg. Photographer: Peter Foley/Bloomberg via Getty Images
Visitors follow on a huge display Facebook's 29-year-old billionaire creator Mark Zuckerberg speaking on the opening day of the Mobile World Congress in Barcelona, on February 24, 2014. Fresh from a $19-billion (14-billion-euro) takeover by Facebook, mobile messaging service WhatsApp said today it will launch free voice calls by mid-year. Zuckerberg was the star speaker today of the industry fair, had announced a stock and cash purchase of WhatsApp last Wednesday of $19 billion (14-billion-euro). AFP PHOTO / QUIQUE GARCIA (Photo credit should read QUIQUE GARCIA/AFP/Getty Images)
Mark Zuckerberg, founder and chief executive officer of Facebook Inc., speaks during an interview at the Newseum in Washington, D.C., U.S., on Wednesday, Sept. 18, 2013. Zuckerberg said helping 11 million undocumented U.S. residents is the most important aspect of immigration issues he's exploring with congressional leaders during a Washington visit. Photographer: Andrew Harrer/Bloomberg via Getty Images
Paul Ceglia, indicted on charges of mail fraud and wire fraud, center, exits federal court in New York, U.S., on Wednesday, Nov. 28, 2012. Ceglia, 39, pleaded not guilty to criminal charges that he faked evidence in his contract lawsuit against Facebook Inc. and its chief executive officer, Mark Zuckerberg. Photographer: Peter Foley/Bloomberg via Getty Images
BARCELONA, SPAIN - FEBRUARY 24: Co-Founder, Chairman and CEO of Facebook Mark Zuckerberg speaks during his keynote conference as part of the first day of the Mobile World Congress 2014 at the Fira Gran Via complex on February 24, 2014 in Barcelona, Spain. The annual Mobile World Congress hosts some of the world's largest communication companies, with many unveiling their latest phones and gadgets. The show runs from February 24 - February 27. (Photo by David Ramos/Getty Images)
Visitors follow on a huge display Facebook's 29-year-old billionaire creator Mark Zuckerberg speaking on the opening day of the Mobile World Congress in Barcelona, on February 24, 2014. Fresh from a $19-billion (14-billion-euro) takeover by Facebook, mobile messaging service WhatsApp said today it will launch free voice calls by mid-year. Zuckerberg was the star speaker today of the industry fair, had announced a stock and cash purchase of WhatsApp last Wednesday of $19 billion (14-billion-euro). AFP PHOTO / QUIQUE GARCIA (Photo credit should read QUIQUE GARCIA/AFP/Getty Images)
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(Reuters) - A New York businessman must face criminal fraud charges for trying to claim a billion-dollar stake in social media company Facebook Inc, a federal judge ruled on Friday.

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 an hour-long hearing in New York, U.S. 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 freshman at Harvard University for Ceglia to invest $1,000 in a planned social networking website.

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

Last year, a magistrate judge in Buffalo recommended that Ceglia's lawsuit be dismissed, finding that it was "highly probable and reasonably certain" that the contract was fabricated in order to pursue the lawsuit. The federal judge overseeing the case has not yet ruled on that 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 U.S. Attorney Preet Bharara, whose office is prosecuting Ceglia, and U.S. Attorney General Eric Holder seeking to halt the criminal case.

On Friday, Ceglia's defense attorney, 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 do not constitute criminal fraud under federal law.

"They're alleging that it's simply a phony, sham litigation," he 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 goes to trial.

Following 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 is legitimate.

"Nothing is going to stop me," Ceglia said.

Ceglia's lawsuit created a bizarre backdrop as Facebook marched toward its initial public offering in May 2013. Facebook's origins were also the subject of a separate legal challenge by Zuckerberg's Harvard classmates, twins Cameron and Tyler Winklevoss, that was chronicled in the 2010 film, "The Social Network."

The criminal case is U.S. v. Ceglia, U.S. District Court, Southern District of New York, No 12-cr-00876. The lawsuit against Bharara and Holder is Ceglia v. Holder et al in the same court, No. 13-00256. The civil case is Ceglia v. Zuckerberg et al, U.S. District Court, Western District of New York, No. 10-00569.

(Reporting by Joseph Ax; editing by Andrew Hay)
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