The assets of the world's No.1 social networking website, Facebook, were directed to be frozen by a New York Court after a man filed a lawsuit claiming he owns 84 percent of the company.
Paul D. Ceglia of New York filed a suit in the Supreme Court of Allegany County, citing a deal which he reportedly signed with Facebook founder Mark Zuckerberg in April 2003. The deal, Ceglia said, allowed him to design and develop the website and in return he got a $1,000 fee and a 50 percent stake in the company.
However, one clause in the contract reportedly allowed Ceglia to own a bigger stake in the company - and much of the profit it has made in the last six years.
"Under Paragraph 3 of the contract, the Seller and Purchaser agreed that for each day after January 1, 2004, the Purchaser would acquire an additional 1 percent interest (in the business), per day, until the website was completed," the lawsuit reads.
Citing the time taken to complete and launch Facebook, Ceglia's suit claims it entitles him to an additional 34 percent stake in the company, or a total of 84 percent.
Last month Ceglia won a temporary injunction restricting Facebook from selling or disposing of its assets until the lawsuit is settled.
Facebook founder-CEO Mark Zuckerberg and the company claim Ceglia's lawsuit is frivolous and have filed for the transfer of the case to the federal court in Buffalo, New York. The company said the lawsuit is almost certainly barred by the statute of limitations, which runs for six years in New York.
"We believe this suit is completely frivolous and we will fight it vigorously," Facebook spokesman Barry Schnitt said. Facebook did not say how it came across Ceglia and what his legal relationship with the company is, if any.
Ceglia and his attorney could not be reached for comment.
If Ceglia's claim is upheld by the court, it will make him a billionaire overnight. Facebook was started by Zuckerberg while he was Harvard University student six years ago. It has grown to become the world's most popular social networking site with more than 500 million registered members and has no dearth of investors.
The company is estimated to be worth $6.5 billion after receiving a $200 million investment from the Russian firm Digital Sky Technologies in 2009. Zuckerberg's fortune was estimated by Forbes magazine earlier this year to be $4 billion.
However, market analysts said they expect Facebook to deal with the matter swiftly.
The contract, they said, is dubious as it doesn't stipulate exactly what Ceglia would have received from Zuckerberg apart from $1,000. The date of the contract also does not appear to match previous accounts of Facebook's creation. Zuckerberg built a predecessor to Facebook called Facemash in October and November 2003, but the domain "thefacebook.com" wasn't registered until January 2004.
Meanwhile, though Ceglia's claim may have come as a shock to Facebook fans, he's no stranger to the courts. Last year, New York Attorney General Andrew Cuomo had accused Ceglia of defrauding customers of his wood-pellet fuel company. The state claimed that Ceglia took more than $200,000 from customers and then failed to deliver any products or refunds. The case is still pending.
But Facebook itself is no stranger to controversy. The Palo Alto, Calif.-based company is battling privacy problems in Germany and other countries while Zuckerberg has been accused of securities fraud by former Harvard colleagues Divya Narendra and brothers Cameron and Tyler Winklevoss. That case is also still pending.
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