Technology

Paul Ceglia: The Man Who Owns 84% of Facebook?


Paul Ceglia says he never would have had an opportunity to become a billionaire if state troopers hadn't arrested him for fraud last October. The self-described environmentalist, who says he thinks illicit drugs should be legalized, manufactured wood pellets used to heat homes and was accused of failing to make deliveries to his customers.

That got Ceglia sifting through old files in his western New York home to find assets to pay back his clientele. He says he came across a document signed in 2003 by Mark Zuckerberg, then a freshman at Harvard and now chief executive of Facebook. He says the document is a valid contract that entitles him to an 84 percent stake in Facebook. Based on estimates of the company's value, that stake would be worth about $21 billion. Ceglia, 37, filed a lawsuit against Facebook and Zuckerberg in New York State court on June 30. What took him so long? He simply forgot about his deal with Zuckerberg, he says. "If this thing hadn't happened the way it happened, no way I would have ever started looking through these ancient folders," Ceglia says. "That contract would just be sitting in there gathering dust."

Facebook says a photocopy of the contract, filed as an exhibit to the lawsuit, is phony. "Ceglia's claims are absurd and his lawsuit is frivolous, if not outright fraudulent," the company said in an e-mail. Paul Argentieri, one of Ceglia's lawyers, says the original document is in a safe place.

Ceglia was born in Wellsville, N.Y., where he still lives. He bounced around after high school: spending two years teaching at an alternative school in Taos, N.M.; opening an ice cream stand back in New York. Ceglia says he bought and sold real estate, built and renovated homes in Wellsville and the Bahamas, helped start an eco-friendly cemetery in Ithaca, N.Y., and was a founding member of the local Green Party. "I like to think about myself as someone that is driven by trying to contribute in some way to increasing the consciousness on the planet," he says on his Facebook page. He signed up in July. "It's a great service," he says.

Zuckerberg Contract

In 2001, Ceglia was contracted by a Massachusetts company, StreetDelivery.com, to photograph street intersections, according to a civil complaint the company filed against him in 2003 over rights to the pictures. StreetDelivery put the photos from Ceglia and others in a database, then sold Internet access to insurance companies investigating car accidents. "I don't have much good to say about Ceglia," says Andrew Logan, founder and CEO of StreetDelivery. "He's a nice enough guy, but man, he would talk one way and then do something completely different."

In 2003, Ceglia started his own company, StreetFax, and tried to replicate StreetDelivery's business. Ceglia says he was looking for programmers and posted an ad on Craigslist. The lowest bidder was Zuckerberg, then an 18-year-old freshman at Harvard. Ceglia says the two signed a two-page contract at a hotel in Boston. According to the copy of the contract attached to the complaint, Ceglia agreed to pay Zuckerberg $1,000 to write computer code for StreetFax. Ceglia claims that Zuckerberg persuaded him to invest another $1,000 in a project Zuckerberg called "The Face Book." In return, the contract cited by Ceglia in his suit gives Ceglia a 50 percent stake in Zuckerberg's project, plus, Ceglia claims, an additional 1 percent interest for each day after Jan. 1, 2004, that the launch of The Face Book was delayed. Although Zuckerberg missed deadlines, Ceglia says he was happy with the future CEO's work. "If at some point in the future I start running Facebook," Ceglia says, "I guess I'm going to have to hire him to keep running the company."

Lisa Simpson, a lawyer for Facebook, said at a court hearing on July 20 that Zuckerberg did sign some contract with Ceglia. What Zuckerberg didn't do, she added, is sign over an interest in Facebook to Ceglia. Facebook argued in court papers that Zuckerberg couldn't have given Ceglia a share of a project he didn't conceive of until a year later.

Fraud Charge

Ceglia lives with his wife, Iasia, and two young sons in an unpainted wood house about two hours southeast of Buffalo, where Ceglia's suit against Zuckerberg and Facebook is pending in federal court, after Facebook transferred it from state court. "Things change," says Ceglia, standing outside the closed pellet-making shop, which he says he built with the help of two Amish men in an enlarged two-car garage near his house. "Here I am in my little factory, and Zuckerberg is now a mogul."

He says he and Iasia started the pellet business in February 2009 to turn reclaimed wood into fuel for eco-friendly heating. "We felt like we had heard Obama's call to help America become energy-independent," he says. Nine months later, on Oct. 30, state police arrested the Ceglias after receiving more than two dozen complaints from customers who said they'd paid for pellets but hadn't received any. The couple was charged in state court with one count of a first-degree scheme to defraud and 12 counts of fourth-degree grand larceny.

According to prosecutors, who won a court order to shut the business in December, the Ceglias received $200,000 in prepaid orders from about 130 customers for 1,900 tons of pellets. The Ceglias told the state troopers that the company did fulfill three orders and refunded 10 to 20. (It wasn't Paul Ceglia's first run-in with the law: In 1997 he pleaded guilty to possession of hallucinogenic mushrooms, according to Panola County [Tex.] court files. He was fined $15,000.) If the State of New York would just let him start selling pellets again, Ceglia says, he'd be able to pay back his customers. For now, he's trying to mortgage property to help pay for the refunds.

Lawyers for Ceglia and Facebook were expected to file papers by Aug. 6 setting a schedule for preliminary

matters, including a deadline for Facebook's response to the complaint. Ceglia says he's surprised his claim has gotten so much attention. He mostly ignores the phone calls he's been getting from journalists and talk radio hosts like Howard Stern and Matthew Erich "Mancow" Muller. "Once I picked it up because I thought I knew the number," he says. "And I'm, like, live on the Mancow show."

The bottom line: Ceglia says he forgot about his 2003 contract with Zuckerberg. Facebook calls Ceglia's claims "absurd."

Van Voris is a reporter for Bloomberg News.

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