Man Claiming Facebook Ownership Arrested on Fraud Charges

In 2010, a New York entrepreneur made an explosive legal claim: An agreement that he had with Facebook's founder Mark Zuckerberg entitled him to a major stake in the social-networking giant.

Mr. Zuckerberg staunchly denied the allegation, and his lawyers insisted that the entrepreneur, Paul Ceglia, was a scam artist.

On Friday, federal authorities sided with Mr. Zuckerberg, arresting Mr. Ceglia and charging him with a multi-billion dollar scheme to defraud Facebook.

Prosecutors say that Mr. Ceglia, 39, of Wellsville, N.Y., filed a sham federal lawsuit claiming to have been promised a 50 percent share of Facebook, and then doctored, fabricated and destroyed evidence to support his allegations.

“Ceglia's alleged conduct not only constitutes a massive fraud attempt, but also an attempted corruption of our legal system through the manufacture of false evidence,” said Preet Bharara, the United States attorney in Manhattan. “Dressing up a fraud as a lawsuit does not immunize you from prosecution.”

Mr. Ceglia is expected to make an appearance in federal court in Buffalo on Friday afternoon. His lawyer, Dean Boland, did not immediately return a telephone call seeking comment.

The improbable claims made by Mr. Ceglia received outsized attention in part because it came at around the same time as the release of “The Social Network,” the Academy Award-winning film that told the tale of Mr. Zuckerberg's legal battle with his Harvard schoolmates, the Winklevoss twins, over the origins of Facebook. Mr. Zuckerberg paid the Winklevosses at least $65 million to settle their case.

Since the lawsuit was first filed, Facebook's lawyers have raised questions about Mr. Ceglia's credibility. In 1997, he pleaded guilty to possessing hallucinogenic mushrooms. And in 2010, the New York State attorney general criminally charged him with defrauding customers in a now-defunct wood-pellet manufacturing business that he had run with his wife.

Questions are now also being raised about the lawyers that represented Mr. Ceglia in his lawsuit.

In his original complaint, filed in 2010, Mr. Ceglia was represented by Paul Argentieri, a sole practitioner in upstate New York. An amended lawsuit was filed in April 2011 by Robert W. Brownlie of DLA Piper, the world's largest law firm, and Dennis C. Vacco, a former New York attorney general now in private practice at Lippes Mathias Wexler Friedman in Buffalo.

In 2011, Mr. Brownlie of DLA Piper declined a request by The New York Times to produce the original documents backing his client's legal claims. “That will come out during the course of litigation,” Mr. Brownlie said. “Anyone who claims this case is fraudulent and brought by a scam artist will come to regret those claims.”

Yet court records indicate that another law firm, Kasowitz Benson Friedman & Torres, had been hired by Mr. Ceglia before DLA Piper and Lippes Mat hias becoming involved. Kasowitz Benson withdrew from the case and put DLA Piper and Lippes Mathias on notice that it had determined that the purported contract was a fraud.

Mr. Brownlie and Mr. Vacco later withdrew from the case. They did not return calls and e-mails seeking comment.

Mr. Ceglia's alleged plot dates back to 2003, when Mr. Zuckerberg was a student at Harvard University. Mr. Ceglia had placed an advertisement on Craigslist looking for a programmer for an Internet business he was trying to get off the ground. Mr. Zuckerberg responded to the ad, and Mr. Ceglia agreed to pay him $1,000 for his work.

Months later, in his college dorm room, Mr. Zuckerberg started a business called Facebook.

Mr. Zuckerberg did not hear from Mr. Ceglia again until 2010, when he was served with a complaint that claimed Mr. Ceglia was entitled to an 84 percent ownership stake in Facebook.

According to the lawsuit, Mr. Zuckerberg had promised him a substant ial interest in either “The Face Book” or “The Page Book.” Attached to the legal papers was a contract that contained language giving Mr. Ceglia an interest in Mr. Zuckerberg's startup. The filing also included e-mail exchanges between Mr. Ceglia and Mr. Zuckerberg that purported to show their collaborating on ideas for the social networking business.

Federal prosecutors say that Mr. Ceglia's claims were entirely false. Government investigators searched Mr. Ceglia's hard drive and discovered the original contract, which had no reference to Facebook.

And Harvard's e-mail servers had no record of the supposed e-mails.

Facebook's lawyers at Gibson, Dunn & Crutcher commended the Justice Department for filing criminal charges and, in statement, indicated that it would pursue possible claims against the lawyers that assisted Mr. Ceglia.

“Ceglia used the federal court system to perpetuate his fraud and will now be held accountable for his criminal scheme,” said Orin Snyder, a partner at Gibson Dunn. “Facebook also intends to hold accountable all of those who assisted Ceglia in this outrageous fraud.”