Facebook: Contract Giving Up Ownership Was 'Forged'

Social network says lawsuit over disputed ownership is "absurd."

July 23, 2010, 12:32 PM

July 23, 2010 — -- Facing a lawsuit from a New York man who says he's owed a majority stake in the $25 billion dollar company, Facebook now says it suspects that the contract at the heart of the suit is a forgery.

Paul Ceglia, the owner of a wood-pellet fuel company in rural Wellsville, N.Y., filed a complaint last month alleging that he signed a contract with Facebook founder and CEO Mark Zuckerberg in 2003 that entitles him to an 84 percent stake in the company.

But in an e-mail, the Palo Alto, Calif.-based Facebook said the ownership lawsuit is "absurd."

"Mark has made it clear that Ceglia's claims are absurd and we strongly suspect the contract is forged," Facebook said in a statement released to ABC News today. "However, we have not seen the original (no one has, including the court). 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 ad idea he had not thought of yet and, even if he could, the statute of limitations has expired."

Since news of lawsuit broke last week, the blogosphere and tech media have bandied about alternating perspectives on the legitimacy of Ceglia's claim, which was made seven years after the contract was allegedly signed.

In an exclusive interview with ABC News Wednesday, Zuckerberg said, "I don't think we -- that -- if we said that we were unsure, I think that was likely taken out of context," he said. "Because I think we were quite sure that we did not sign a contract that says that they have any right to ownership over Facebook."

The copy of the contract that Ceglia submitted his complain states that he was supposed to acquire a 50 percent interest in Facebook -- then known as "The Face Book" -- in an agreement to develop the site and also stipulated that Ceglia pay Zuckerberg $1,000.

The contract, Ceglia said in his complaint, also allowed him an additional 1 percent stake in the business for each day after Jan. 1, 2004 until the website was completed. The website thefacebook.com, according to the lawsuit, was finished on Feb. 4, 2004 -- a 34-day span that would entitle Ceglia to another 34 percent stake in the business, the lawsuit said.

Judge Issued Temporary Restraining Order Preventing Facebook From Transferring Assets

Earlier this month, Facebook responded to the lawsuit but moving to have the case transferred from New York state court to federal court.

In an e-mail to ABCNews.com last week, the company said that the lawsuit "is completely frivolous" and that the company "would fight it vigorously."

Before the case was transferred, a judge in Allegany County, New York, issued a temporary restraining order preventing Zuckerberg and Facebook from transferring or selling any assets.

Facebook said that while the order won't affect the company's ability to do business, it is nonetheless asking the federal court to dissolve the order because Facebook does "not believe it is legally supported."

The contract Ceglia included with his complaint lists himself as a purchaser and Zuckerberg as a "contractor/seller" in an agreement for the "continued development of the software, program 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 access to a wesite [sic] similar to a live functioning yearbook with the working title of 'The Face Book.'"

Some have cast doubt on the timeline presented in Ceglia's claim, noting that Zuckerberg didn't register the domain name thefacebook.com until January 2004 and that he didn't develop predecessors to the website -- Course Match, a site that allowed Harvard students to see what classes their friends were taking; and Facemash, which allowed students to rank the attractiveness of student ID photos -- until the autumn before, according to published reports on the founding of Facebook. Facemash landed Zuckerberg in a university discplinary hearing for security breaches and privacy and copyright violations but he was not expelled, Zuckerberg told The Harvard Crimson in 2003.

In 2009, New York Attorney General Andrew Cuomo sued Ceglia, his wife and Allegany Pellets, the couple's wood-pellet fuel company, for allegedly taking more than $200,000 from customers but failing to deliver any products or refunds. Cuomo obtained a temporary restraining order at the time banning the business from taking payments from customers.

An e-mail last week from ABCNews.com to Allegany Pellets prompted an automatic message from the company's e-mail account. The message said, "We are in the process of reaching an agreement with the New York State Attorney General's office and will let everyone know once an agreement is reached."