Facebook and Website Designer Paul Ceglia Brawl Over 84% Stake


Facebook and a New York man named Paul Ceglia are in a legal brawl over allegations that the social networking giant owes him an 84% stake in the company for designing its website, according to media reports. Adding fuel to the fire, a New York judge has clamped down on Facebook, placing the Internet company under a temporary order that bars it from transferring any of its assets as the case makes its way through court, according to a Reuters report.

Ceglia, who reportedly had a brush with the law last year (as noted at WellsvilleDaily.com), filed a civil lawsuit against Facebook last month in New York's Allegany Supreme Court. Ceglia alleges his April 2003 contract to design thefacebook.com website called for a $1,000 payment and a 50% stake in the product, according to Reuters.

Here's the kicker: The contract allegedly called for an additional 1% stake in the business for each day until the website was completed. Based on Ceglia's estimates, as of Feb. 4, 2004, that amounted to a total stake of 84% in Facebook.

In a statement, Facebook says: "We believe this suit is completely frivolous and we will fight it vigorously."

Ceglia Under Fraud Indictment

The social networking giant said the state court judge's order won't affect its ability to do business, and it doesn't believe the judge's order is legally supported. Facebook has since moved the case from a New York state court to federal court and is asking that court to dissolve the state court judge's order.

Ceglia's attorney was not immediately available for comment.

Wall Street has been eagerly waiting for Facebook to launch an IPO, but its founder and CEO Mark Zuckerberg has been slow to hit the go button. The company, which has secured mega-investments from such sources as Microsoft (MSFT), was reportedly valued at $14 billion earlier this year, based on sales in the secondary market, according to TechCrunch. That would give Ceglia's theoretical 84% stake a value of nearly $11.8 billion.

But that alleged paper wealth was apparently not enough to satisfy Ceglia and his wife Iasia, if the 12-count criminal charges the couple faces hold true. According to the WellsvilleDaily.com report, back in November:

Paul and Iasia Ceglia are charged with 12 counts each of fourth-degree grand larceny and one count each of first-degree scheme to defraud. The Ceglias, owners of Allegany Pellets, LLC, allegedly defrauded customers out of at least $200,000. They allegedly took presale orders for wood pellets, but allegedly failed to deliver the product and allegedly were unable to refund anyone's money, Amity-based state police have said.

In the following month, New York Attorney General Andrew Cuomo weighed in and obtained a temporary restraining order against Allegany Pellets and the Ceglias. Calls to the Allegany County District Attorney handling the criminal case were not immediately returned.

For Facebook founder Zuckerberg, Ceglia's lawsuit isn't the first time he's been embroiled in a legal battle over the creation of his company. Zuckerberg and co-founder Eduardo Saverin had a legal spat that ultimately was resolved, as was the case with former classmate Cameron Winklevoss, according to a ValleyWag report.