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Zuckerberg admits working for man claiming Facebook ownership (theregister.co.uk)
118 points by cesare on July 21, 2010 | hide | past | web | favorite | 64 comments

The nature this case in relation to how it is being reported fascinates me. Let me summarize while making a few observations:

1. A guy comes out of nowhere and files a lawsuit in a state court in Allegany County, New York (population: about 50,000 - http://quickfacts.census.gov/qfd/states/36/36003.html).

2. The lawsuit is filed on June 30, 2010 and consists of a grand total of 2 pages of allegations, coupled with a request for relief (see http://www.scribd.com/doc/34239119/Ceglia-v-Zuckerberg-compl...).

3. Among the substantive allegations are absurdly wrong ones (from a lawyer standpoint), such as the allegation in paragraph 3 that Facebook is a "domestic corporation" in New York. Facebook is in fact a foreign corporation that is qualified to do business in New York, as is shown by the very attachment the lawyer appends to the complaint itself (Exhibit B). I make this point only to highlight a certain level of sloppiness that attends this whole matter. This is hardly a mark of top-flight lawyering.

4. The contract states that it is entered into as a "Purchase agreement and 'work made for hire' that reflects two separate business ventures," the first for something called StreetFax Database and the second for the "continued development of the software, programs, and for the purchase and design of a suitable website for the project Seller has already initiated that is designed to offer the students of Harvard university [sic] access to a website similar to a live functioning yearbook with the working title 'The Face Book'." Mr. Ceglia was to pay to Mr. Zuckerberg $1,000 for the work he did on StreetFax and an additional $1,000 for the work he did on "The Face Book." In turn, Mr. Ceglia was to receive (with respect to the "Face Book" work, the following: "It is agreed that the Purchaser will own a half interest (50%) in the software, programming language and business interests derived from the expansion of that service to a larger audience." The contract then provides that "the agreed upon completion for the expanded project with working title 'The Face Book' shall be January 1, 2004 and an additional 1% interest in the business will be due the buyer for each day the website is delayed from that date."

5. The agreement appears to be a canned document and is poorly drafted. Since its terms appear to be heavily slanted in favor of Mr. Ceglia, it is probably fair to assume that this was his form of contract which he presented to Mr. Zuckerberg (then a student) to sign.

6. The complaint then alleges that the website was completed on February 4, 2004 (paragraph 7) and asserts that Mr. Ceglia is therefore entitled to an extra 34% of "the business," (paragraph 8) or 84% in total.

7. A few comments on the above:

(a) can anyone say "vagueness" and "uncertainty" as serious problems with this contract? with no company formed at the time, this is a guy who essentially hired Mr. Zuckerberg to develop a website that was to be like a "live yearbook" and who claims that he is to have an 84% stake in any future expansion of that idea to be made by Mr. Zuckerberg, no matter what form it took and no matter who else contributed value to build that business; this in essence is a claim by Mr. Ceglia that, at any time and under under any circumstances, he can pull a piece of paper out of his pocket and claim a perpetual non-dilutable stake in somebody's company based on a work-for-hire contract for a small development fee done before that company was even to be formed; thus, every founder who might work in that company, even for years, every investor who might invest in it, and every other stakeholder (including innocent purchasers for value who bought shares in the company in secondary trading), all such persons were to work, sweat, and toil, taking huge risks all the while, and all were to be subject to dilution - except for Mr. Ceglia, who could take his sweet time and come forward at any time with his claim of an 84% non-dilutable interest;

(b) if not vagueness, how about an unenforceable penalty? How would you react to someone who told you he would pay $1,000 for some development work and then take 1% of your company for every day delay in completing the project? Such terms are outrageous to say the least and probably serve to render the entire contract unenforceable, particular when the contract as a whole amounts to an alleged non-dilutable stake in a business no matter what future form it might take;

(c) how about statutes of limitations? New York apparently has a 6-year statute for breach of a written agreement. If the work was done by February 4, 2004, then Mr. Zuckerberg's obligation to perform would have started on that date. The complaint was filed on June 30, 2010, well past the 6-year deadline. Thus, on its face, the claim appears to be time-barred. One can of course allege facts for why the statute did not begin to run until a later date. This complaint fails to do so.

(d) Other equitable defenses would almost certainly apply so as to preclude assertion of any claim for equitable relief after such a long delay (laches being the most obvious - I discussed this in an earlier comment, http://news.ycombinator.com/item?id=1509601).

Thus, all in all, a lawsuit full of holes is built up by sensationalist reporting into a supposed major threat to Facebook and to Mr. Zuckerberg.

This is where the reporting becomes interesting. I think this relates to a strong impulse to see Mr. Zuckerberg get some sort of comeuppance for whatever reason.

The case got major headlines nationwide because a judge in a small state court entered a TRO, with the reports touting the idea that this gave the claim more gravitas because judges do not enter a TRO lightly. Yet this judge did just that. He entered the order even though the defendants had been given no notice of the application and even though the plaintiff made no showing whatever of likelihood of success on the merits and of alleged irreparable harm that he would suffer if the defendants were not enjoined from transferring assets while the TRO was in effect (see the brief filed by Facebook making these points, http://www.scribd.com/doc/34240120/Ceglia-v-Facebook-Motion-...). Without getting into technicalities, this amounts to a court having concluded that the TRO had to be entered to cover a 15-day period in which Mr. Ceglia might otherwise suffer irreparable harm absent a court order barring any transfer of Facebook assets during that period. After a nearly 7-year delay, it is basically absurd that such an order should have been entered. No possible harm could have come to Mr. Ceglia over a 15-day period that would have been any different from whatever risk he had faced for the nearly 7 years pre-dating the order. Thus, the TRO was ill-conceived at best and the federal court to which this case was removed immediately stayed its effect upon getting the case (the parties have since agreed to allow it to expire and die a merciful death).

In this piece, then, we get a subtitle stating or implying that the claims made by Facebook's lawyers (that this lawsuit was frivolous) were in themselves frivolous. Why? Because we now have an admission by Mr. Zuckerberg's lawyers that he did indeed sign the contract. This is then touted as some sort of setback for Facebook's case.

From a lawyer's standpoint, this is all really weird. This case is full of holes and represents at best a wild swing at Facebook and Mr. Zuckerberg. The contract is worded in a flaky manner. The terms themselves are outrageous by any measure (think about you would react if someone claimed a perpetual stake in whatever you did just because he paid you a small fee for a minor development effort). The lawyering in support is slipshod at best. Yet, in spite of all this, the reporting on it is building continual momentum such that it is perceived as a serious problem for the company and all because a judge entered an ill-conceived TRO and because of the basically irrelevant fact that Mr. Zuckerberg's lawyers admit that he signed the contract (a fact never previously denied). Yes, this all makes for high drama, but it also makes for highly inaccurate reporting on the legal merits of what is happening.

At most, in my view, this case represents a nuisance claim against Facebook, as no court in the world is about to prejudice the interests of innocent investors, co-founders, employees and the like for the sake of some guy who comes out of the woodwork after long delays with a wildly worded contract that is of dubious enforceability. While a court might be more open to entertaining a claim against Mr. Zuckerberg personally, even that is so dubious here as to be barely worth considering.

There are obviously many people who want to see Mr. Zuckerberg get what is due to him but this will not be the channel by which that might happen, notwithstanding the reporting on the case. In the end, this will be tried to a federal court and not in the blogs. And, in the courts, this thing is going nowhere.

I am, by the way, no apologist for Mr. Zuckerberg and have been quite critical of his actions in relation to the whole ConnectU mess (which does pose a serious risk for him and for Facebook, as I discussed in an earlier comment, http://news.ycombinator.com/item?id=1362379).

While I think you're probably absolutely correct from a legal perspective, I also think that you're missing the point. This is interesting precisely because the contract is so amateurish, yet it appears that Zuckerberg actually signed the damned thing! As bizarre and weak as the claims may be to a lawyer, to a layman, this is the clearest evidence yet that Zuckerberg was involved in some shady dealings early in Facebook history. And this time, unlike the rich kids involved in the previous dispute, we've got an amateur investor, who can't afford competent legal counsel.

You're thinking like a lawyer, and focusing on the technicalities of the case. Everyone else is taking the contract at face value. If Zuckerberg gets out of this on a legal technicality, it's because he's damned lucky that the contract he signed wasn't written by a better attorney. Frankly, I doubt that most laypeople like the precedent of that outcome.

to a layman, this is the clearest evidence yet that Zuckerberg was involved in some shady dealings

Really? Perhaps to the sort of layman who's already quite convinced 'shady dealings' took place. If someone got some college kid to sign an unenforceable (and certainly ridiculously unfair, from an ethical, if not legal standpoint) contract, how is that evidence of 'shady dealings', rather than inexperience and naivete?

The whole thing seems completely preposterous, I think to anyone who's entered a contract or two. It's hard to imagine the 'everyone' who would take this contract at face value, at least, not the subset of everyone who's ever signed a lease, mortgage or employment agreement and/or has had the most passing consultation with a lawyer about one. The fact that someone with professional legal expertise feels the whole thing is likely preposterous makes it more, not less likely that is the case. To suggest otherwise is to possess an oddly conspiratorial turn of mind.

Any item of litigation will resolve itself based on two major factors: (1) legal technicalities; and (2) what I call "motivating factors."

I upvoted irq11's comment, though I disagree with the conclusion, for flagging this important distinction.

Any lawyer who assesses a case purely on legal technicalities will likely get caught short because all concerned at a trial (judge and jury) will normally be taking a wider view of the case based on their sense of what really happened between the parties, regardless of legal technicalities. If they see someone as a liar, a jerk, a schemer, a shark, or whatever, they will be highly "motivated" to find against that party so long as the law gives them any hook upon which to do so.

That said, my own view tends to align with yours (pvg). As I see it, this thing has "shark" written all over it, and the shark here will likely be seen to be Mr. Ceglia (both because of the heavily lopsided contract terms and because he is opportunistically trying to sandbag FB's shareholders - who clearly are innocent even if Mr. Zuckerberg is not - after lying in wait for many years, a dirty shot by any measure). I could be wrong on this, of course, but I would be quite surprised in this sort of case if someone who did what Mr. Ceglia did here would be viewed sympathetically at any phase of this court proceeding. In other words, I would say that the "motivating factors" for this case would tilt in favor of Mr. Zuckerberg (and Facebook) from the facts revealed so far. Reasonable minds might differ on this (with respect to Mr. Zuckerberg only), and other facts might later be revealed to alter this conclusion, but that is how I see it so far.

Of course, there is no accounting for how people might choose to see this outside of court but I think this tends to confirm my point that many people simply have a desire to see Mr. Zuckerberg get his comeuppance and that is why the reporting comes out the way it does as well.

Your position is as biased as any other -- you're just choosing to focus on Zuckerberg's age, and consequently assume that he was victimized. Perhaps that's true, perhaps not.

When I look at this, I see an incredibly unsophisticated legal agreement. The author of the contract hardly strikes me as a knowledgable player, and I'm not inclined to assume that he ever had the upper hand in a battle of wits with Zuckerberg. In any case, the fact that a contract is poorly written doesn't automatically make me disregard it's intent, and here the intent of the contract is so clear that even Mark Zuckerberg -- innocent babe that he was -- could have understood it.

Right but it's exactly the intent that seems almost predatory, however legally unsophisticated it is. Let's assume, as seems reasonable, that both parties were fairly clueless and acting without the benefit of good professional advice. When you read the contract, doesn't the stuff Ceglia is asking for seem kind of nuts? And not in any technical legal sense, just in general.

On the contrary, this is the kind of precedent I'm happy about, as a (youngish) entrepreneur.

Take me for example. I'm working on my own startup. Eventually, I'm probably going to get funding, and sign into some kind of contract. Now the fact is, I'm no legal expert, and I don't have money to hire a legal expert from day one. The fact that the law makes some contracts unenforceable makes me feel much safer about not entering into any kind of mess that will seriously screw me.

Obviously, this only goes so far. And of course I will pay for actual legal counsel before entering a contract. But anything that society can do to make it easier to start a startup, including things like not having to worry about certain legalities, is a Good Thing, since it makes startups more likely.

"I will pay for actual legal counsel before entering a contract"

That's easy to say - when it comes down to getting a lawyer to review something or making payroll that months it starts to look a bit trickier - especially when you realize that having a lawyer review something actually only provides a very limited form of protection. Of course, if you have external investors you tend to use lawyers more as you have to be seen to be performing due diligence and, of course, you simply have more money.

But if your would-be funders have to think too hard about what kind of contract they can offer you, that's enforcable --- they might not decide not to bother at all with funding you.

pg: "A lot of startups have some kind of secret about the subterfuges they had to resort to in the early days..."


Well I'm not a lawyer, but from a complete laymans point of view I'm not sure I agree with all your points. I don't expect my opinion to be worth a lot to anyone, but I still think there are a lot of questions I'd want answered if I was financially invested in facebook.

Firstly the contract is only a couple of pages long and the point about owning 50% of thefacebook is right there in the first paragraph. It might seem ridiculous now that thefacebook was only valued by them at $2000 at that time, but thats only in hindsight. And at a valuation of $2000 1% a day is only $20 a day as a late penalty.

No idea about the timing issues, but if the guy thought the deal was successfully completed (afterall he paid Zuckerberg, we have no idea if he cashed that cheque) then as far as he was concerned all was fine and he owned 84% of the business. I don't see how a problem arose until Zuckerberg incorporated and didn't give this guy his fair share - and that happened in summer 2004 (according to wikipedia).

As for the unreasonableness of it all, Zuckerberg obviously needed the money at the time and thought that's what thefacebook was worth at the time. Arguably facebook wouldn't be in the position it is now without that guy's money. Maybe he's only entitled to 84% of Zuckerberg's personal share, but thats still pretty significant. Who knows, it might all be a forgery, but it doesn't seem that frivolous to me anyway.

I leave it to New York lawyers to get into the fine points of the contract law here but I would add this to my earlier comments:

1. This contract is outrageous and unconscionable - not one founder among the thousands I have worked with over 25 years in Silicon Valley would even begin to consider giving away half or more of his company (much less 84%) for a $1K investment. If I tried to do this as a lawyer in a client's company, I would be instantly disbarred. This type of money typically gets someone a 1% interest or less, even at the earliest stage.

2. When I pay x dollars for item y, and the other party breaches the contract by failing to deliver y after I have paid my x dollars to him, I have been damaged and am entitled to a remedy. The normal remedy is an award of damages, which means I am normally entitled to the monetary value of y as of the date of breach or, if I rescind the contract for the failure to perform, to a refund of my x dollars. Applying this principle in Mr. Ceglia's case (and assuming he gets the best possible outcome in establishing liability), he would get either the monetary value of 84% of what Facebook was worth in the summer of 2004 (when it was first formed and when he became entitled to his equity interest) or else to a refund of his $1,000 - in each case, with interest accruing since the date of breach. If we assume Facebook is like the typical startup, and was worth at most a few hundred thousands of dollars at inception, Mr. Ceglia's maximum damages would be up to a couple of hundred thousands (plus interest since 2004).

3. For Mr. Ceglia to be get a judgment ordering Mr. Zuckerberg to convey 84% of his stock in Facebook to him, he would need to show that he is entitled to specific performance of the contract. This is an equitable remedy and a court will award it only where the item that was to have been a delivered has a "unique" aspect to it that cannot be compensated by damages (the classic example is a parcel of real property). I would doubt that stock would qualify as "unique" in this respect. Also, because specific performance is an equitable remedy, a court will only use such a remedy to do equity and will therefore not grant it where (just to pick a few items off the list in a Wikipedia piece on this remedy, http://en.wikipedia.org/wiki/Specific_performance) (a) it would cause severe hardship to the defendant, (b) the contract is unconscionable or illegal, (c) the claimant misbehaved (no clean hands), (d) specific performance is impossible, or (e) the contract is too vague to be enforced. As appears from that list (assuming that New York law generally conforms with this approach), Mr. Ceglia has some daunting obstacles to overcome before he can claim a share of Mr. Zuckerberg's holdings, even if he can prove that he was harmed by a breach of contract. Of course, those same equitable factors utterly preclude his being able to get specific performance in any way that would harm Facebook's innocent shareholders generally.

As far as "point 1" is concerned, in our industry it really does seem "outrageous and unconscionable", but as far as case law is concerned I wonder if in the grand scope of new businesses in general it would be viewed as such. The court may be predisposed to believe that people and businesses have freedom to contract, and it seems reasonable to believe that the argument could be made that this clause should be left to stand as written.

New York may have been chosen as venue in order to "fit" with known case law on this and other points. Such as the allegation in paragraph 3 that Facebook is a "domestic corporation" in New York (a very basic detail to get wrong about this) seems like it might be an "error-on-purpose" to lay the foundation for using a particular case, either now or later. Sloppy errors do happen, so does venue shopping, and with a case that has this big of a potential payoff, feigned errors on the part of counsel might allow introduction of some "hoped for" piece of a supporting case. It is New York after all.

Ok thanks for that, I would certainly agree that I don't know any founders who sell (at least) 50% of their company at any stage for $1000. Also the way its in a contract about some other software delivery is bizarre. My post was taking a very generous view of Mr Ceglia's claims (and no doubt completely wrong about the law) and assuming that Mr Zuckerberg had knowingly signed the contract. It still makes me wonder if this isn't all some kind of forgery.

The contract seems quite fair and it's worth pointing out that Andy Bechtolsheim invested $100,000 in "Google" before "Googol" was even incorporated. Google lore has it they changed the name just to cash the check. As far as 1% penalties, it's not unheard of (particularly in construction) to penalize lateness and reward early completion. This guy's lawyer may be a putz, but if it has merit he'll have no trouble hiring better counsel.

I disagree with the general premise of your argument that he was preyed upon. At the time Mark's company was making zero dollars. It was a high risk investment and the investor knew it.

Some responses (these all assume that this whole contract is not a forgery, and Mr. Zuckerberg entered into it knowingly)

a) It seems to me that the work to be performed is adequately spelled out and vagueness is not an issue. (even by name 'The Facebook') I'd be inclined to agree with you if Mr Ceglia hired Mr. Zuckerberg to develop something totally unrelated and then claimed ownership over a product developed later, but there seems to be little question that the site started there @ Harvard morphed over time into the Facebook we know today.

b) I don't see how this penalty is unenforceable. There is a good chance the whole venture was viewed to be worth 1000->2000 at the time of the contract. Not only was Zuckerberg content to sign this contract, he was sufficiently disinterested in maintaining 50% ownership at the time that he took an additional 34 days to finish the project. A contract isn't invalid just because, years later, it seems one of the parties agreed to a bad deal. At the time, the deal probably seemed quite fair.

c) As far as I know, in America - unlike England - the clock on the statute of limitations starts upon discovery of the breach by Mr. Ceglia. It is very easy for him to claim that he didn't discover a breach until 2005 or 2006.

As an additional point, I believe there is no way the claimant will be able to claw back equity from those who have received it without knowledge of Mr. Zuckerberg's breach. I can't be certain about NYC but in almost all states they are protected. (You seem to know what you are talking about so perhaps you could clarify this?)

I don't understand what is weird about this claim. There is a word for a perpetual stake in a business: Equity. Majority equity holders choose how or when to dilute their stake. Ceglia gave Zuckerberg $1000 and he got equity in return. If I run a lemonade stand and you buy half for a grand and eventually I grow it into a lemonade empire, I don't get to divest you of your stake just because I agreed to a bad deal. I agree the suit is poorly put together, but I don't see anything at all weird about the claims.

Why is no one considering the fact that Zuckerberg signed it (if its not a fake) and then never bothered to share it with anyone else? Isn't that legally/morally criminal?

That may be, but this is more than just a case of Zuckerberg vs Ceglia. Even if Zuckerberg kept his personal knowledge of this close to the chest hoping that he would never be called out on it, Ceglia waited a long time to make this claim, all the while people were pouring money into Facebook. Now he wants to come out of the woodwork and stomp all over their claims?

Ceglia is definitely acting like a shady character and Zuckerberg is suspect of being a shady character with respect to this contract, but I feel that the interests of everyone involved with Facebook the company hold more weight then the single claim by Ceglia.

Yet, in spite of all this, the reporting on it is building continual momentum such that it is perceived as a serious problem for the company.

Despite the shoddiness of Mr. Ceglia's case against FB, at what point does the price of negative publicity outweigh the price of a cheap settlement for FB?

"This is where the reporting becomes interesting. I think this relates to a strong impulse to see Mr. Zuckerberg get some sort of comeuppance for whatever reason."

I have a more interesting theory on why this reporting is happening.


The movie is based on the book "the accidental billionaires.". A significant part of the plot is around whether zuck cheated some dudes who contracted him to build something Facebook-like.

These news stories are marketing plant items intended to build hype for the movie.

In the morning, btw.

I wish I could subscribe to your HN comments as a RSS feed.

Of all the speculation on what could kill Facebook, did anyone ever imagine it might be a "wood fuel salesman" from New York? Sometimes truth is stranger than fiction.

It will never kill Facebook. Facebook as an entity will still exist. Sure there might be a change in ownership, lawsuits, etc. But nobody involved would want to threaten the functional business / golden goose which is Facebook.

Good intent doesn't always end up with good result. Maybe this guy doesn't want Facebook to die, but without Zuck, the company culture, the engineers will flee away rapidly. It will never be a good change to hand a tech company to a "wood fuel salesman".

Well, he did have the foresight to invest a mere $1000 in a potentially worthless venture, but more surprisingly, he had the patience to hang on to it. It would make for a rather infamous turn of events either way.

I don't think he'd threaten it, but rather would just immediately liquidate his share, and move on his merry way.

Unless the fiction is a Cohen Brothers movie. In that I could see Facebook being killed off by a wood fuel salesman from New York.

Hopefully, no woodchippers will be involved in this story.

Please see http://tech.fortune.cnn.com/2010/07/21/the-massive-hole-in-f...

We strongly suspect the contract is forged. We have not seen the original (no one has). Thus, we’re focusing on the things that are not open to interpretation and are indisputable -- Mark could not have given interest in a company that didn’t exist or and idea he had not thought of yet and, even if he could, the statute of limitations has expired.

Bret Taylor, Facebook CTO

It sounds to me that FB should settle for a nice wad of cash, and make this all go away. Given a decent offer, my advice to Ceglia would be to take it. That said, a lot of people invested in FB in good faith, so perhaps any payments should come from Zuckerberg himself? I am usually not so interested in legal proceedings, but this may get interesting.

What exactly would be a decent offer considering the valuation of FB?

As commented in another thread, it would be ludicrous for Microsoft, Digital Sky Technologies et al. to allow Mr. Ceglia a seat on Facebook's board. They will explore and deploy every legal option to avoid this. It is not so ludicrous for investment bankers to engineer a tax-minimal FU-style lifestyle for Mr. Ceglia by endowing a non-profit for some pet interest of his choice and paying him handsomely.

If Mr. Ceglia truly wants ownership of Facebook, he is going to have to fight for years. If he wants enough money for a private jet, he just might get it. As will his lawyers.

This could be the most lucrative transaction in the history of Craigslist.

And the twist is if Ceglia truly did have this contract with Zuckerberg, it leaves the ConnectU guys in a particular interesting situation (as the Facebook idea was being worked on way before ConnectU).

And the twist is if Ceglia truly did have this contract with Zuckerberg, it leaves the ConnectU guys in a particular interesting situation.

No it doesn't. The issue was never "who thought of Facebook first". All of this was when Myspace was at it's peak. Everyone had the idea to do a Myspace competitor.

The issue is Zuckerberg taking people's money and making false commitments by accepting a job and lying to the ConnectU guys that he was still working on it to delay them as much as he could.

  > No it doesn't. The issue was never "who thought of
  > Facebook first". All of this was when Myspace was at
  > it's peak. Everyone had the idea to do a Myspace
  > competitor.
Really? MySpace was at its peak at the end of 2003/beginning of 2004? And everyone at that time was trying to build a 'MySpace competitor?'

"Fuck you" money, basically. The difference between $FU and 2 x $FU is pretty insignificant, so haggling past that point is irrational, but the difference between 10 x $FU and 0 - huge lawyer fees is enormous and the probability of coming up worse than empty way too high. In his position, I'd take a "large" cash (or easily-liquidated) settlement over almost anything available via litigation, even seemingly enormous portions of the company.

Of course, I also don't think Facebook's star is going to exponentially rise over the next three or four years, so I may not be in the majority here.

There is something to be said for the power of litigation. Presumably this guy does not have millions of dollars to spend fighting legal battles for the next ten years no matter how much the evidence is in his favor. Facebook and Zuckerberg do.

There is enough money at stake that a legal team could take this on a contingency fee basis. The visibility involved in being on the legal team, coupled with the high probability of some kind of settlement if it dragged on, means that there may be many attorneys who would be willing to prosecute the suit.

I hate these leeches. "Yeah, I hired him to shovel the driveway, and you didn't do the sidewalk behind the garage, so I own your house now."

I hate people that agree to one thing and then do another if it isn't what they want later on. "Yeah, I hired him to shovel my driveway. He said he invented a new shovel called "The Shovel" and needed money to sell it. I invested with him and now he says his new shovel, called "Shovel", is unrelated."

my comments may have been premature

I actually found the last line:

Facebook paid [ConnectU] $65m to go away.

to be the most interesting. I don't follow the Facebook story very closely, but I had no idea that much money changed hands over the ConnectU thing.

So you never followed the story very closely, but are suprised by some of the facts in the story? I never really read much physics, but was surprised to learn that Gravity = 9.8m/s/s. Does that make much sense?

If this guy's claims are legitimate, does he own 85% of all of Facebook, or 85% of Zuckerberg's share of Facebook? Presumably he would have been diluted in subsequent funding rounds, etc?

What portion of Facebook does Zuckerberg still own?

IANAL, but perhaps it could be argued that MZs continued work after the "online yearbook" site launched in 02/2004 constituted sweat-equity and thus diluted Ceglia's shares?

Anyway, if Ceglia and his lawyers have half a mind, they're after a tiny (compared to 84%) settlement.

Wikipedia says 24%.

Why would a Harvard student give up 50%+ of ownership for a mere $1000?

$1000 of weed/beer in exchange for 50% of a worthless venture probably sounded ok at the time.

No, that's still a stupid proposition. Most Harvard students are presumbly pretty damned well off in the first place. Also, now that we've seen Zuck after the fact, you can't deny he is reasonably intelligent. Seems like a completely non-standard move imo.

Even though I surely could use the money I'm way too arrogant to give up 50% of something I'm working on. I think the entire planet knows how arrogant Zuck is (not necessarily a bad thing).

If I was 19 yo I'm not so sure I wouldn't give up 50% of a company for $1k. Remember, at age 19, you haven't actually created anything of value. This $1k seems like a free computer at the time. And in the off chance this company does well, 50% of $1B is $500M. I'm happy to just have my $500M. Or at least I would be at the time I'm hypothesizing about this company.

Of course, Mark wouldn't take that deal now if he started a new company. But I bet you can still find a relatively bright student somewhere who would.

There are plenty of students from well-off families - that doesn't mean that they personally have access to a lot of cash to spend on whatever they want.

Regardless, I wasn't trying to give an actual accounting of Zuckerberg's thought process. It was more of an attempt at an easy joke about the proclivities of the average 19 year-old college student.

Also, why didn't he resolve the situation by either starting a new company or buying back his shares as soon as it was apparent Facebook could become something big?

No corporation or shares existed at the time the work for hire was done....

Can someone please clarify the ethical as well as legal ramifications of subverting investors by starting a new company?

For example: You start company A, in market M. Your investors give you 5k in exchange for 50%. You spend your 5k learning about market M and now you're diluted. What's stopping you from creating company B, to attack same market, but from an enhanced perspective?

In many cases, there are contracts in place to prevent exactly that.

When I cashed out of my first startup, I was legally prohibited for working in that domain for X years.

possibly because he is/was young and naive

Yes, but this is the sort of thing that should have come up during the due diligence of the very first round of funding.

My bet is Zuck has a contract with Fincher for The Social Network, its sequel and prequel, and maybe even TV series.

Facebook may be close to becoming a Harvard Business School case on how to create a startup with dangerously murky ownership of IP and equity.

See also Skype.

If Zuck was a more empathizable character I would feel really really sorry for him. This is the sort of youth mistake that really gets you.

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