While the Winklevosses could end up losing their settlement, the risks for Facebook are high as well. If the court unwinds the agreement, the company will have to decide whether to offer them a richer settlement or face a trial. Recent trades on a private exchange suggest that Facebook, which is not a public company, now is worth around $50 billion, and the company may not want the negative publicity associated with a trial, especially if it decides to move forward with a stock offering.
The roots of the original dispute date to 2003, when Mr. Zuckerberg, then a Harvard sophomore, said he would help the Winklevosses and Mr. Narendra program Harvard Connection, later renamed ConnectU. But Mr. Zuckerberg delayed work on Harvard Connection, and when pressed for answers, stalled, according to the Winklevosses. In February 2004 he released TheFacebook, which eventually became Facebook.
After ConnectU and its founders sued, Facebook countersued in 2005.
The settlement, which gave Facebook ownership of ConnectU, was supposed to resolve all claims.
The details of the new dispute, which erupted almost immediately, are less known, in part because the parties reached the settlement after a confidential mediation. But according to court documents, the parties agreed to settle for a sum of $65 million. The Winklevosses then asked whether they could receive part of it in Facebook shares and agreed to a price of $35.90 for each share, based on an investment Microsoft made nearly five months earlier that pegged Facebook’s total value at $15 billion. Under that valuation, they received 1.25 million shares, putting the stock portion of the agreement at $45 million.
Yet days before the settlement, Facebook’s board signed off on an expert’s valuation that put a price of $8.88 on its shares. Facebook did not disclose that valuation, which would have given the shares a worth of $11 million. The ConnectU founders contend that Facebook’s omission was deceptive and amounted to securities fraud.
They refuse to say how much they would ask for in a new negotiation, but they said that based on the lower valuation, they should have received roughly four times the number of shares. At today’s price, that would give the settlement a value of more than $500 million.
In its brief, the company says it was under no obligation to disclose the $8.88 valuation, which was available in public filings. Facebook describes it as one of many that it received and as “immaterial” to the calculations of ConnectU founders and their battery of lawyers and advisers.
“There was no chance that that one valuation would have affected the decision of these sophisticated investors and their entourage of advisers,” Facebook wrote in its brief.
In marketplaces that match buyers and sellers of the shares of privately held companies, Facebook’s shares have soared to more than $100 in recent trades, after adjusting for stock splits.
So far, Facebook’s arguments have won the day in multiple court rulings.
The brothers are hoping for better luck next month, before the United States Court of Appeals for the Ninth Circuit. Unless they decide to give up.
Last year, the Winklevoss brothers completed coursework for a masters in business administration at Oxford. Cameron helped to start Guestofaguest.com, a Web site that offers information about “people, places and parties” in New York, Los Angeles and the Hamptons.
“We are moving forward and trying to be productive individuals,” Cameron said.
When asked if they could have turned ConnectU into a site with hundreds of millions of users, like Mr. Zuckerberg did with Facebook, the twins replied in unison, “Absolutely.” They added that Mr. Zuckerberg deserved some credit for “not screwing up” and expanding Facebook into a community of 500 million users. But they believe the fame and fortune is undeserved.
Tyler Winklevoss said: “Mark is where he is because we approached him to include him in our idea.”
Richard Heathcote/Getty Images
Cameron Winklevoss, left, and Tyler Winklevoss, Olympic rowers, in action last spring in London.
After ConnectU and its founders sued, Facebook countersued in 2005.
The settlement, which gave Facebook ownership of ConnectU, was supposed to resolve all claims.
The details of the new dispute, which erupted almost immediately, are less known, in part because the parties reached the settlement after a confidential mediation. But according to court documents, the parties agreed to settle for a sum of $65 million. The Winklevosses then asked whether they could receive part of it in Facebook shares and agreed to a price of $35.90 for each share, based on an investment Microsoft made nearly five months earlier that pegged Facebook’s total value at $15 billion. Under that valuation, they received 1.25 million shares, putting the stock portion of the agreement at $45 million.
Yet days before the settlement, Facebook’s board signed off on an expert’s valuation that put a price of $8.88 on its shares. Facebook did not disclose that valuation, which would have given the shares a worth of $11 million. The ConnectU founders contend that Facebook’s omission was deceptive and amounted to securities fraud.
They refuse to say how much they would ask for in a new negotiation, but they said that based on the lower valuation, they should have received roughly four times the number of shares. At today’s price, that would give the settlement a value of more than $500 million.
In its brief, the company says it was under no obligation to disclose the $8.88 valuation, which was available in public filings. Facebook describes it as one of many that it received and as “immaterial” to the calculations of ConnectU founders and their battery of lawyers and advisers.
“There was no chance that that one valuation would have affected the decision of these sophisticated investors and their entourage of advisers,” Facebook wrote in its brief.
In marketplaces that match buyers and sellers of the shares of privately held companies, Facebook’s shares have soared to more than $100 in recent trades, after adjusting for stock splits.
So far, Facebook’s arguments have won the day in multiple court rulings.
The brothers are hoping for better luck next month, before the United States Court of Appeals for the Ninth Circuit. Unless they decide to give up.
Last year, the Winklevoss brothers completed coursework for a masters in business administration at Oxford. Cameron helped to start Guestofaguest.com, a Web site that offers information about “people, places and parties” in New York, Los Angeles and the Hamptons.
“We are moving forward and trying to be productive individuals,” Cameron said.
When asked if they could have turned ConnectU into a site with hundreds of millions of users, like Mr. Zuckerberg did with Facebook, the twins replied in unison, “Absolutely.” They added that Mr. Zuckerberg deserved some credit for “not screwing up” and expanding Facebook into a community of 500 million users. But they believe the fame and fortune is undeserved.
Tyler Winklevoss said: “Mark is where he is because we approached him to include him in our idea.”
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