[ by Howard Haykin ]

NY Businessman Who Sued to Gain Control of Facebook, Arrested on Fraud Charges.

A New York businessman today faces criminal charges of trying to defraud Facebook Inc and its chief executive, Mark Zuckerberg, by claiming that he was promised a share in the social-media company, federal prosecutors said.  The office of Preet Bharara, federal prosecutor in Manhattan, said in a statement Paul Ceglia was arrested at his home in Wellsville, NY, on Friday morning and will appear in court later in the day.  Ceglia's lawyer could not immediately be reached for comment.

2010 Lawsuit and Release of 'Facebook' Movie. 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.  Mark Zuckerberg staunchly denied the allegation, and his lawyers insisted that the entrepreneur, Paul Ceglia, was a scam artist.  Today, federal authorities sided with Mr. Zuckerberg, arresting Mr. Ceglia, charging him with a multi-billion dollar scheme to defraud Facebook.

"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.  Dressing up a fraud as a lawsuit does not immunize you from prosecution." -- Preet Bharara, the U.S. attorney in Manhattan.

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.

Alleged Plot Dates Back to 2003. 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%  ownership stake in Facebook.

For further details, go to:  [Dealbook, 19/26/12] and [ Reuters, 10/26/12].