Facebook CEO Accused of Securities Fraud

Precision noted that Facebook CEO Mark Zuckerberg turned 26 last week, and gets to celebrate by being accused of securities fraud. This goes back to the old Facebook legend that Zuckerberg stole code from other Harvard students.

Comments

And, just like that, you see the message:

[ultraexactzz]

"You and 54,972 others like this."

Re:And, just like that, you see the message:

[Lumpy]

"big bad bubba poked you. -- poke back"

I don't suggest poking bubba back. He's more of a Top.

Note to Owen Thomas

[smooth wombat]

The fin on top of your head doesn't do what you think it does.

Remember, folks

[palegray.net]

While Facebook certainly has been in the press an awful lot lately given growing concerns over privacy issues, this is an accusation, not a conviction. From the article:

The latest unwelcome gift: accusations of securities fraud from former Harvard schoolmates who say he and other Facebook executives tricked them into a supposed $65 million settlement that was actually worth far less.

He may or may not be guilty of anything, so let's try to keep a cool head in the meantime.

Re:Remember, folks

[somersault]

He may or may not be guilty of anything

I've never actually done any research into the guy, but from all the stories up here I can pretty much tell he's a douche.

Re:Remember, folks

[Pojut]

I gotta say, I'm not all that surprised...think about it, you're just an average college student, and not a few years later you're a billionaire. That's gonna fuck with your ego, no matter who you are.

Re:Remember, folks

[ElectricTurtle]

Oh to be so burdened.

Re:Remember, folks

[lorenlal]

Especially when you make that money by screwing other people over in the first place (allegedly).

BTW - I'm not a huge fan of the fact that the summary refers to the allegations as "legend." That strongly implies that it never happened... And there's decent indication that it may have.

Re:Remember, folks

[dAzED1]

yeah, the worst-case scenario could happen, and he could be reduced to just a couple hundred mill. Wouldn't that be a shame :/ I can't imagine trying to live off that much as a 26yo; ramen every day, yuck!

Do you *really* think that he hasn't diversified at least a little by now?

Re:Remember, folks

[Anonymous Coward]

"Do you *really* think that he hasn't diversified at least a little by now?"

He has. Into securities fraud.

Re:Remember, folks

[blind biker]

He was not yet a billionaire when he called the Facebook users "dumb fucks". That's right, he was 19, long before those billions would have hit his ego too hard, and already calling the users of his service dumb fucks.

Once that sinks in, I think we can conclude that he has been a douche all along.

Re:Remember, folks

[Lumpy]

no. 26yr old = not enough experience in the world.

It's why he's know as a raging ass to many that deal with him. he's outright cocky and it will bite him in the butt.

Honestly, after reading the accidental billionaires book http://www.nytimes.com/2009/07/20/books/20maslin.html
  I am certain that I would not want to have ever had to deal with the man. Every account of him makes him feel "slimey" and sets off all my red flags.

Re:Remember, folks

[spire3661]

"The measure of a man is what he does with power" - Plato. As true 2000 years ago as it is today.

And you know what they say

[Thanshin]

Those who desire to steal securities in order to gain freedom will not have, nor do they deserve, either one.

All i can say is

[Combatso]

I bet he will regret the 'Poke' feature if he does time

Where's the Securities Fraud?

[darkmeridian]

I didn't see anything in the article that suggests he was accused of securities fraud, which generally means an accusation from the SEC for something like insider trading. Ripping off counterparties in a settlement deal may not be great behavior (even though the plaintiffs' lawyers should have realized this a lot sooner than they did) but it is not the same as saying there was securities fraud. Again, it sounds like the article is flamebait or the author just has no idea what he's talking about.

Re:Where's the Securities Fraud?

[Fnkmaster]

I am not a securities lawyer, but the SEC 1934 Act allows private civil suits regarding securities fraud. This act has been amended and reformed and affected by case law, but you can get the basic gist of modern requirements for civil securities fraud lawsuites here.

The securities don't have to be publicly traded. You don't have to sit around and wait for the SEC to investigate. If somebody made material misrepresentations in connection with the sale of securities, that's enough to meet the basic threshold of being subject to this law and open to civil suits. Then there are just a series of bars to get over regarding showing that the person knowingly caused you to lose money and had the intention of screwing you.

These things are expensive to litigate, so the stakes have to be high. Your average $250k angel investment gone wrong isn't going to be something you bring to court. A class action representing thousands of shareholders who each lost hundreds of thousands of dollars in a publicly traded company, however, has enough money at stake to see this sort of lawsuit fairly frequently.

This case is only unusual in that most parties to large private investments on this scale (tens of millions of dollars) are private equity firms or venture capital funds and they generally can do their own due diligence on transactions in the tens of millions of dollars and can afford to write off the expected percentage of complete losses and partial losses. In this case, the suing party took securities that may have been misrepresented as settlement for a lawsuit, and presumably didn't have the resources on hand to conduct their own due diligence.

So I can't say for certain whether a judge will allow this case - are securities offered as part of a settlement being "offered for purchase or sale"? You'd have to ask a lawyer to tell you whether that is technically the case, but if they accepted the securities in lieu of cash, there might be a case for that.

But just because you don't hear about this kind of case terribly frequently doesn't mean it's total bullshit or that the author is flaming or an idiot.

Hating facebook

[goombah99]

How we humans love to tear down success. It's in our social nature. So it's perhaps ironic that Facebook, the top predator in the land of social acceleration, is having a bad week and we are all enjoying the schadenfreude.

That observed, one can realize there are good reasons to hate face book, and overblown ones. Facebook is changing social norms, including privacy norms, faster than the older generations are comfortable with. This could be good in some cases, but there's also can be excellent reasons why traditions became traditions. For example I try to keep a tight hold on my personal information but I can't exactly tell you why I care so much. I just innately think it could come back and bite me. Also it seems a little unseemly to burden others with oversharing. Also people are mean.

My hope is that as the bad reasons get debunked we don't lose sight of the good reasons for hating facebook.

Re:Hating facebook

[mikael_j]

Well, to be honest Facebook really wasn't the first "community" website, or the first site to have the features that it has, it just happened to manage to become the biggest.

Personally I don't mind congratulating and rewarding whoever first came up with an idea (although almost everything "new" is built on what came before it in one way or another, I doubt there was some caveman who woke up one morning, had some leftovers from yesterday's hunt and then figured out the theory of relativity) but why should we all smile and pretend we admire Zuckerberg just because his site happened to become the biggest? By the same logic no one should be criticizing Microsoft because they, after all, managed to become the biggest. Or IBM for that matter, or any other industrial, political or military giants. Hell, we should all have been congratulating the soviets on a job well done when their nuclear arsenal surpassed the US one (and if some brownnosing people had their way we'd also be rewriting the history books to ignore any US achievements in building nuclear weapons that came prior to the soviet equivalents).

A lot of what is considered "business savvy" these days is really just a matter of some decent knowledge of a subject (but not "OMG NEW EINSTEIN!!1" knowledge, just solid knowledge) combined with luck and timing (and you can get lucky when it comes to the timing, your idea might have been tried by some other guy a year ago when the market wasn't ready for it but now the market is ready for it and since you were unaware of the other guy's failure you take another stab at it, or maybe you simply took longer to complete your product/service and the other guy was actually better than you but ignored by customers/users because the market wasn't ready yet, just because you're "first to market" isn't a guaranteed path to profit).

Re:Hating facebook

[spun]

Humans do not hate success. Humans love a winner. We love deserved success, success that comes from hard work, determination, and smarts. We hate undeserved success, that comes from taking advantage of others. We are social animals, born with an innate sense of fairness. We don't hate success, we hate injustice and unfairness.

Re:Hating facebook

[goombah99]

Isn't there a huge difference between the companies you list (IBM and MS) and Facebook? IBM and Microsoft got big through hard work and smart business behavior and it took them a quite a long time and a lot of persistence. In the case of MS the products may have been crap but they were crap people wanted. for example, to carnoivres steaks are great but they take skill to prepare so there is actually a lot more revenue in hot dogs which we all know are crap but what we love. MS made crappy software but it did in a way that let oem equipment makers mass market the PC at cheap prices. You got what you paid for, but it was designed carefully to be what you were willing to buy.

Facebook seems to have gotten big mainly by chance. like being the only bacteria in the pietry dish. The only savvy they had was realizing the peitre dish was available and rushing to get there first. But because it happened so fast-- basically just at the moment it was technically possible it happened-- we suspect that maybe even they did not realize it. It's like Yahoo, ebay or craigslist. Someone was going to do it. One lucky bacteria got there first.

Re:Hating facebook

[TerranFury]

born with an innate sense of fairness.

More on this: The Moral Life of Babies.

Re:Hating facebook

[Eponymous Coward]

To be fair though, back in the days when it required an .edu address to join, Facebook was much more private than it is now. Now, they constantly change their terms of service and make public what was once private. I think that's what has a lot of people upset.

Re:Hating facebook

[jeffmeden]

Except they quickly beat out Myspace and Friendster; two services that were also free, somewhat popular and relatively equal in basic features. Facebook had an angle (college kids) and they exploited that extremely well, and followed it up by tacking on more mass market features (open apps that led to mafia wars and all the rest).

Lucky? Yes, but then do you think Henry Ford got along on his luck alone?

Re:Hating facebook

[corbettw]

Facebook seems to have gotten big mainly by chance. like being the only bacteria in the pietry dish. The only savvy they had was realizing the peitre dish was available and rushing to get there first.

You're right, no one ever thought of social sites before Facebook.

Re:Hating facebook

[dkleinsc]

Speaking from experience working with kids, while I'm not entirely sure about babies, you can be darn sure that 10-year-old kids will call you out if they think you're playing favorites. If you set a rule, it had better be the same rule for everybody, or they will walk all over you trying to get special treatment. The good news is that if you are playing fairly by everybody, these same kids will actually hold each other to the same rules. And that basic sense doesn't go away in adolescence - I've watched 15-year-old boys enforce my rules for me because they were convinced that the rules were reasonable and fair.

So whether it's innate, or learned at a very young age, both parent and GP are right on the money.

Re:Hating facebook

[AltairDusk]

I actually didn't mind sharing some things as much when it was only for college students. Then they opened up the floodgates and in my opinion it's been going downhill ever since. Not to mention the contents of your Facebook profile could prevent you from being hired for a job.

What business a company has prying into your personal life when deciding whether to hire you I don't know but Facebook did nothing to stop it.

Re:Hating facebook

[blind biker]

Oh, the "good old times", when Zuckerberg sold the information of 4000 Harvard accounts?
Sure, back then Facebook was so much better, mindful of people's privacy and all.

Fetch the popcorn!

[Rogerborg]

A bunch of arrogant entitled Haaaarvard douches get butt-humped by the biggest douche amongst them, then spend the rest of their natural lives giving all of their money to lawyers until none of them have anything except crack habits and an autobiography in the bargain bin.

I mean, you can't buy entertainment like this. It's win-win, especially if they all lose.

The whole story

[schmidt349]

The title of this article is totally misleading. The Winklevosses agreed to a settlement involving a payment of cash and a quantity of Facebook stock assuming a certain valuation. That valuation was based on the Microsoft purchase of a small chunk of the company that, if you bought all the stock at the same price, would make it work $15 billion.

Obviously that valuation was unrealistic, but the Winklevosses agreed to it *because their lawyers told them to.* Their law firm didn't complete their due diligence or else they may have wanted to renegotiate the deal. But that's not even remotely Facebook's fault.

The reason for this accusation is that the Winklevosses have to pay their lawyers a contingency fee based on the higher valuation of the stock. This will result in a net loss to them. They're pissed off at this turn of events, so they're casting aspersions on Facebook's CEO and demanding a securities investigation. But don't forget that they're a pair of moneyed aristocrats from a family of moneyed aristocrats (read: spoiled brats). So don't think of them as wronged parties because they're not.

Facebook was no more the Winklevosses' idea than Windows Aero or Mac OS Aqua or Enlightenment or KDE were the ideas of Xerox PARC.

there once was a time

[circletimessquare]

when friendster looked like it was going to take over the internet

there once was a time when myspace looked larger than google

and, in a few short years, someone will say something about facebook, probably as a joke, and someone else will say "facebook? what's that?"

the realm of social networking is true to what it is: an endless party, hosted by one rich kid whose parents are on vacation after another, no one claiming the right to say they are truly in control for very long, forever

what i envision is a permanent progression, every 5-10 years, a new friendster/myspace/facebook taking over the mantle of darling of the ball, and then rudely discarded and abandoned, in endless succession, forever

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[account_deleted]

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Re:oh, so avant garde

[spun]

We are not a predatorial, combative species. We're more like the Bonobos (pygmy chimps) than chimps. They screw each other silly at the drop of a hat to smooth over social tensions. The traits you describe are a consequence of developing agriculture and a surplus, and then experiencing famine. Instead of moving on to more fertile grounds, we stayed until the surplus was exhausted, then used our newly developed societal organization to wage war on our neighbors. This resulted in a whole generation of brain damaged children (starvation does that) being raised by a whole generation of PTSD damaged (war does that) adults. Our selfish side was locked in culturally.

This is why you don't see walled cities before a certain point in history. No weapons exclusive to killing other humans as opposed to hunting, either. No mass graves, not until the time period when the Sahara dried up.

Science has shown that your view of human nature is fundamentally incorrect. Please see my post above yours for citations. It is human nature to be more concerned about fairness and reciprocity than self interest. But the opposite view excuses all sorts of unfair and non-reciprocal behaviors, and so it is still immensely popular with a certain set of privileged people, despite the evidence against it.