UPDATE 2-NY man who sued Facebook faces criminal charges

* Man who claimed Facebook stake arrested at NY home

* Ceglia charged with mail fraud and wire fraud

* U.S. Attorney's office sees case of 'blatant forgery'

Oct 26 (Reuters) - A New York man was arrested Friday on charges he forged documents in a multibillion-dollar scheme to defraud Facebook Inc and its chief executive, Mark Zuckerberg, through a lawsuit claiming a huge ownership stake in the Internet company.

Paul Ceglia, 39, a one-time wood-pellet salesman from Wellsville, New York, was charged with mail fraud and wire fraud over what federal prosecutors and the U.S. Postal Inspection Service said was fabricated evidence to support his claim to a large stake in Facebook through a 2003 deal with Zuckerberg.

The accusations had marked a bizarre twist to Facebook's march toward its highly anticipated initial public offering in May. Separately, Facebook's origins were also the focus of a legal challenge by Zuckerberg's Harvard University classmates, the twins Cameron and Tyler Winklevoss, in a saga chronicled in the film, ``The Social Network.''

Ceglia sued the Silicon Valley company and its chief executive in 2010, claiming that a 2003 contract he signed with Zuckerberg entitled him to a stake in the social media network. Zuckerberg had done programming work for Ceglia's company, StreetFax.com, while at Harvard.

This past March, as part of that case, Facebook attorneys released emails sent by Zuckerberg to show Ceglia's claims were false. The attorneys cited work by forensic experts who found that Ceglia had typed text into a Microsoft Word document and declared it was the text of emails with Zuckerberg.

Ceglia sought ``a quick pay day based on a blatant forgery,'' U.S. Attorney Preet Bharara in Manhattan said in a statement announcing the criminal charges. ``Dressing up a fraud as a lawsuit does not immunize you from prosecution.''

A lawyer for Ceglia could not immediately be reached for comment.

``Ceglia used the federal court system to perpetuate his fraud and will now be held accountable for his criminal scheme,'' Orin Snyder, a partner at law firm Gibson Dunn who is representing Facebook and Zuckerberg in the civil case, said in a statement.


In his lawsuit, filed in federal court in Buffalo, New York, Ceglia had claimed that Zuckerberg shared his plans for a social networking site with him while working at StreetFax. He contended that their contract granted him part ownership in Zuckerberg's project in exchange for a $1,000 investment.

To build his case, Ceglia submitted what he said were emails from Zuckerberg that proved the pair had discussed the project that would eventually become Facebook.

But Zuckerberg said he had not even conceived of the idea for Facebook until December 2003, and submitted his own emails to prove his version of the timeline.

Ceglia went through a string of lawyers from prominent firms, including DLA Piper and Milberg, who worked with him on the case, and later withdrew.

Ceglia was arrested at his home Friday morning and was to appear in federal court in Buffalo later in the day, authorities said. Each of the charges against him carries a maximum sentence of 20 years in prison.

Investigators for the Postal Inspection Service, which is conducting the probe, made the arrest following Ceglia's return to the U.S. this week after spending time out of the country, according to a source familiar with the matter who was not authorized to speak publicly on the case.

Separately, and also on Friday, Massachusetts fined Citigroup $2 million to settle charges that two bank analysts improperly released confidential information about Facebook's financials before the technology company went public.

The case is USA v. Paul Ceglia, U.S. District Court, Southern District of New York.