By Joseph Ax
NEW YORK (Reuters) - A New York businessman must face criminal fraud charges for trying to claim a billion-dollar stake in social media company Facebook Inc, a federal judge ruled on Friday.
Paul Ceglia, 40, is accused of forging a 2003 contract with Facebook CEO Mark Zuckerberg that supposedly entitled him to part ownership of the company.
After an hour-long hearing in New York, U.S. District Judge Andrew Carter rejected Ceglia's request to throw out the charges, finding he had failed to meet the "high standard" needed to dismiss a grand jury indictment.
Ceglia sued Zuckerberg and Facebook in 2010 in a federal court in Buffalo, New York, claiming that he and Zuckerberg had signed a contract while Zuckerberg was a freshman at Harvard University for Ceglia to invest $1,000 in a planned social networking website.
Zuckerberg had previously done some programming work for Ceglia's company, StreetFax.com. Facebook has argued that the only contract between the two men was related to that company and accused Ceglia of faking various documents as part of his lawsuit.
Last year, a magistrate judge in Buffalo recommended that Ceglia's lawsuit be dismissed, finding that it was "highly probable and reasonably certain" that the contract was fabricated in order to pursue the lawsuit. The federal judge overseeing the case has not yet ruled on that recommendation.
Prosecutors in New York charged Ceglia in 2012, accusing him of forging documents as part of the Buffalo litigation.
Ceglia has since filed a separate lawsuit against Manhattan U.S. Attorney Preet Bharara, whose office is prosecuting Ceglia, and U.S. Attorney General Eric Holder seeking to halt the criminal case.
On Friday, Ceglia's defense attorney, David Patton, argued that the government should be barred from prosecuting him for allegations he made in the context of a civil lawsuit, warning that it could discourage litigants from filing claims.
He also said the government's allegations do not constitute criminal fraud under federal law.
"They're alleging that it's simply a phony, sham litigation," he said. "That's not fraud."
Carter said the indictment was sufficient to move ahead, though he said he would consider Patton's arguments at a later date if the case goes to trial.
Following the hearing, Ceglia vowed to press forward with his claims against Facebook, while his civil attorney, Joseph Alioto, said they would prove the Zuckerberg contract is legitimate.
"Nothing is going to stop me," Ceglia said.
Ceglia's lawsuit created a bizarre backdrop as Facebook marched toward its initial public offering in May 2013. Facebook's origins were also the subject of a separate legal challenge by Zuckerberg's Harvard classmates, twins Cameron and Tyler Winklevoss, that was chronicled in the 2010 film, "The Social Network."
The criminal case is U.S. v. Ceglia, U.S. District Court, Southern District of New York, No 12-cr-00876. The lawsuit against Bharara and Holder is Ceglia v. Holder et al in the same court, No. 13-00256. The civil case is Ceglia v. Zuckerberg et al, U.S. District Court, Western District of New York, No. 10-00569.
(Reporting by Joseph Ax; editing by Andrew Hay)