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Facebook and Securities Fraud?

Seems like Mark Zuckerberg is experiencing a serious dose of ‘when it rains, it pours’ these days. The scrutiny that he and the Facebook bunch is facing for their privacy concerns has become a true thorn in the side of the biggest social networking player on the planet. Many have said that it is unfair to continually put Zuckerberg in the cross hairs but reports of movies being made and more of late has put him in a less than flattering light. I see it as the price of fame and fortune in a world gone silly over any kind of celebrity but that’s just my take.

The latest concerns come about over the case that simply will not go away for Facebook. This is the one where $65 million was paid to three former Harvard classmates whose accusations that the idea for Facebook that originated at Harvard as ConnectU was stolen. The case was ‘settled’ in a tentative agreement in 2008 but there is more now as VentureBeat reports

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

Judge James Ware of the Court of Appeals for the Ninth Circuit will hear those arguments, filed in an appellate brief late last month, in an upcoming court case.

Divya Narendra and brothers Cameron and Tyler Winklevoss (pictured above) contend that they hired Zuckerberg to work on their social network, ConnectU, when they were all students at Harvard, only to have him delay the project and use ConnectU’s code to launch his own project, then called TheFacebook. Their side of the story gained credence after instant messages sent by Zuckerberg bragging about his success in duping them emerged in the press.

What is alleged in the appeal brief which can be found in the VentureBeat post, is that the original deal was for $65 million to make the ConnectU ‘connection go away. Apparently the trouble starts when in the original agreement that was based on the $15 billion valuation that Microsoft had given Facebook. That valuation was done in preferred shares but the agreement with the ConnectU crew was done in common shares which cuts the value of the deal nearly in half. Apparently the ConnectU crew is none too pleased.

So what are the implications to us as marketers? Just more muddy waters that circle around Facebook which cast a pall on the company as a whole. It’s about doubt. Big companies that experience tremendous growth have problems. That’s just part of the game. Things happen quickly and not always in the best way possible. That’s fine. Facebook though seems to either be getting an unfair share of criticism or there is really something rotten at the core of it all.

What seems to keep happening with Facebook are things that give a sense that the ethical foundations of the company are not real strong. They run roughshod over privacy of their users and act like it’s a ‘no harm, no foul’ action. Now they are in a court battle that outlines shady activities from the beginning of thefacebook’s time that include the original idea being stolen, money paid to quiet those accusations and then a reneging of sorts by pulling a bait and switch on payment of the deal.

I am not the moral judge and jury here. I will say though, that when you look at Facebook as a whole there are more negatives than positives with regard to their way of doing business. Eventually that will hurt any business. I have to believe that even Facebook isn’t exempt from that.

Do you think they are?