8 ms·

Court says Winklevoss twins must accept Facebook deal

80 points by jedwhite 16y ago

imjk 16y ago
"At some point, litigation must come to an end," Chief Judge Alex Kozinski wrote. "That point has now been reached."
- kenjackson 16y ago
  Doesn't litigation come to an end when justice has been served? I don't know the details of the case, nor do I have a stake in this, but it seems odd to limit damages if one party illegally withheld information. This coupled with the recent Supreme Court ruling that prosecutors effectively can't be held accountable for hiding evidence that would exonerate a defendent -- seems to be saying that your best strategy in the legal system is to illegally withhold information, because the legal system will eventually not care, even if the actors in the case still do.
  - shasta 16y ago
    Doesn't litigation come to an end when justice has been served? You mean once justice has taken its cut, right?
  - fleitz 16y ago
    I think more to the point the amount awarded the Winklevoss twins is sufficient to cover their damages. Also, IIRC Facebook didn't withhold information from the court, they withheld information during a settlement negotiation. When purchasing private securities via any mechanism the purchasing party should to due diligence to ensure they are receiving fair value for it. I think they have a latin phrase for this something like 'caveat emptor'. That the Winklevosses have this much money, that many connections, and manage to get themselves duped by the same guy is impressive.
    - kenjackson 16y ago
      I think more to the point the amount awarded the Winklevoss twins is sufficient to cover their damages. If so, then justice has been served. Again, I don't know the details, so if that's the case, I'd hope the judge would actually state that even in the light of any new evidence their damages have already been covered in full. Exclaiming that there's simply an end to litigation seems to imply that justice hasn't been served, but we don't want to bother with it anymore. Also, IIRC Facebook didn't withhold information from the court, they withheld information during a settlement negotiation. When purchasing private securities via any mechanism the purchasing party should to due diligence to ensure they are receiving fair value for it. I think they have a latin phrase for this something like 'caveat emptor'. There are laws around disclosure of information for private securities. Maybe none of those laws were broken or didn't apply. But that seems like a reasonable question for the courts. I hope the judge actually weighed this and didn't simply toss it because he thought he had more pressing matters.
      - jacques_chester 16y ago
        The writing of judgements tends to resemble a recursive descent parser. The case itself will cause the parties to survey the tree of legal arguments quite thoroughly; then it will be up to the judge to present the version of the law they believe is correct. Judges don't like being appealed against, so as a rule they will treat every argument made before them when rendering judgement. Otherwise they leave an opening for an appeal on the basis that certain arguments weren't settled.
  - tedunangst 16y ago
    Litigation ending only when justice is served is an impossible standard. The losing party (whichever side it is in that round) will obviously feel justice has not been served and appeal endlessly. If the two sides agreed on what constituted justice, there wouldn't be a court case.
    - jacques_chester 16y ago
      > If the two sides agreed on what constituted justice, there wouldn't be a court case. And indeed this is the entire point of the common law: to provide independent decisions, according to rules, in order to settle disputes without violence. Endless appeals don't always work either -- you actually need a legal reason to appeal beyond "I disliked the decision". You need something like "The judge was wrong on points of law X, Y and Z" and you need the appellate court to agree that there might be something to review. Most appellate courts look pretty dimly on appealing for the sake of appealing. Plus their time is limited, so they will tend to pick cases with broader legal consequences that will impact more than the disputants.
timmyd 16y ago
"Fool me once - shame on you. Fool me twice - shame on me."
- KE4ZNR 16y ago
  Maybe it is just me being the lowly I.T. Geek I am but I do have a difficult time feeling any sympathy for the "Wonder Twins". They were set for life before pursuing this litigation and will still be set even with this ruling. I guess since I was not lucky enough to be born in the "Silver Spoon" way of living it makes my care threshold for them set very low :)
deleted 16y ago
[deleted]
- leviathant 16y ago
  Was a jury involved with this decision?
  - esoteriq 16y ago
    No - this is an appeal, no juries involved. Judges rule the appeal-land. But I'm sure Kozinksi (sp?) saw the social Network. Heh.
  - deleted 16y ago
    [deleted]
cabalamat 16y ago
They should think themselves lucky to get $65 million for essentially nothing. They are really no different from people who post on Craigslist that they have a great new startup idea and just need someone to code it for them. The only difference is that because they are rich and well-connected they were able to unjustifiably extract money from Zuckerberg, who unlike them made something people want.
- Jabbles 16y ago
  In terms of facebook's most recent valuation, you could argue that the idea was "0.1%", and execution the 99.9%, in line with the general HN agreement that "ideas are nothing, execution is everything". (That is, of course, assuming that MZ owes them anything for the idea.)
  - deleted 16y ago
    [deleted]
- phlux 16y ago
  I have no love for the twins, however I also cant agree with your statement. There is a difference between posting on CL with an idea. and having an idea/site and plan laid out - recruiting a developer who decides to work with you who obviously would add value to the design/plan - and then him turning around after agreeing to work with you and implementing his own version of it. If, for example, he had read an ad on CL - which the ad alone ignited something inside him and he went and implemented it on his own - then I could agree. He was recruited and agreed to work on the project for/with them. Then, he fucked them over in the negotiations as well. Anyway this is looked at, Zuckerberg is a complete douchebag. Successful? Yes. Within legal rights? Sure - but an amoral untrustworthy douchebag none-the-less. I am not saying the twins should receive [whatever it was they were seeking] - but I am tired of people defending mark zuckerberg.
  - dasil003 16y ago
    Sure, Zuckerberg acted unprofessionally, and so they do probably deserve something. But it's important to realize that they came out ahead by $65m. There's not a chance in hell that if Zuckerberg had simply delivered what they asked and then severed ties in an ethical manner that they would have created a company worth anywhere near that.
grellas 16y ago
If anyone still cares, this was the case that created such an uproar last May when it was widely reported that Mark Zuckerberg had been accused of committing "securities fraud," allegedly adding to his supposedly shady legal woes (prior HN discussion here: http://news.ycombinator.com/item?id=1362379 http://news.ycombinator.com/item?id=1362379). In fact, the securities-fraud claim was merely some legal legerdemain by which the Winklevoss brothers sought to set aside the $65 million settlement they had struck with Facebook in their quest to obtain more. It is basically absurd to say that a party settling a legal case must comply with the disclosure laws for making a private placement in offering a stock component as part of a settlement package in a mediation context. The Ninth Circuit panel here obviously agreed, and the writing was on the wall on this issue even after the oral argument held three months ago (see my comment here: http://news.ycombinator.com/item?id=2096370 http://news.ycombinator.com/item?id=2096370). The case is not necessarily dead, at least in theory, since the Winklevoss brothers might petition to have it reconsidered en banc by the full Ninth Circuit and can file for a writ to the Supreme Court. At this stage, though, such options are long-shot options at best. I note one irony in passing. The ratio of the stock value to cash payment that made up the original settlement was not coincidental. The $65 million value consisted of 1.2 million Facebook shares originally valued at $45 million plus $20 million in cash. Receipt of such stock is a taxable transaction and, indeed, would constitute ordinary income to the Winklevoss brothers. Thus, they were to have received $65 million in taxable income, including $20 million in cash to help cover the tax. But that was then. Having chosen to fight the issue, they would not have realized any form of taxable income on this deal until they actually received the stock. As a result, when they now receive the cash/stock package, they will realize an estimated $170 million in taxable income (the cash plus FB stock worth $150 million), with only $20 million to help defray taxes. That stock will not be immediately marketable, even on the secondary exchanges and will require FB's permission to be sold there. The net result, unless I mis-analyze, is that the Winklevoss brothers have by their choosing to fight managed to convert over $100 million in stock value from what would have been a long-term capital gain into ordinary income, will have to pay much higher taxes accordingly, and will (I would assume) be faced with a serious logistical problem in the form of a short-term cash squeeze in raising funds to cover the taxes. I am not a tax specialist and may be wrong on this, but I don't think so. FB dodged a bullet on this one. Had the settlement been set aside, the liability overhang would very likely have messed up its IPO, among other serious consequences. That was the gamble apparently made by the Winklevoss brothers - that they would be able to exact a much larger settlement as a result of their leverage obtained from having the issues re-opened. It appears, though, that they gambled and lost and not without detriment to themselves. For its part, FB now seems to be in the clear.
yuhong 16y ago
Personally I wonder why the IMs were not revealed until after the settlement.

80 points by jedwhite 16y ago

imjk 16y ago

"At some point, litigation must come to an end," Chief Judge Alex Kozinski wrote. "That point has now been reached."

kenjackson 16y ago
Doesn't litigation come to an end when justice has been served? I don't know the details of the case, nor do I have a stake in this, but it seems odd to limit damages if one party illegally withheld information. This coupled with the recent Supreme Court ruling that prosecutors effectively can't be held accountable for hiding evidence that would exonerate a defendent -- seems to be saying that your best strategy in the legal system is to illegally withhold information, because the legal system will eventually not care, even if the actors in the case still do.
- shasta 16y ago
  Doesn't litigation come to an end when justice has been served? You mean once justice has taken its cut, right?
- fleitz 16y ago
  I think more to the point the amount awarded the Winklevoss twins is sufficient to cover their damages. Also, IIRC Facebook didn't withhold information from the court, they withheld information during a settlement negotiation. When purchasing private securities via any mechanism the purchasing party should to due diligence to ensure they are receiving fair value for it. I think they have a latin phrase for this something like 'caveat emptor'. That the Winklevosses have this much money, that many connections, and manage to get themselves duped by the same guy is impressive.
  - kenjackson 16y ago
    I think more to the point the amount awarded the Winklevoss twins is sufficient to cover their damages. If so, then justice has been served. Again, I don't know the details, so if that's the case, I'd hope the judge would actually state that even in the light of any new evidence their damages have already been covered in full. Exclaiming that there's simply an end to litigation seems to imply that justice hasn't been served, but we don't want to bother with it anymore. Also, IIRC Facebook didn't withhold information from the court, they withheld information during a settlement negotiation. When purchasing private securities via any mechanism the purchasing party should to due diligence to ensure they are receiving fair value for it. I think they have a latin phrase for this something like 'caveat emptor'. There are laws around disclosure of information for private securities. Maybe none of those laws were broken or didn't apply. But that seems like a reasonable question for the courts. I hope the judge actually weighed this and didn't simply toss it because he thought he had more pressing matters.
    - jacques_chester 16y ago
      The writing of judgements tends to resemble a recursive descent parser. The case itself will cause the parties to survey the tree of legal arguments quite thoroughly; then it will be up to the judge to present the version of the law they believe is correct. Judges don't like being appealed against, so as a rule they will treat every argument made before them when rendering judgement. Otherwise they leave an opening for an appeal on the basis that certain arguments weren't settled.
- tedunangst 16y ago
  Litigation ending only when justice is served is an impossible standard. The losing party (whichever side it is in that round) will obviously feel justice has not been served and appeal endlessly. If the two sides agreed on what constituted justice, there wouldn't be a court case.
  - jacques_chester 16y ago
    > If the two sides agreed on what constituted justice, there wouldn't be a court case. And indeed this is the entire point of the common law: to provide independent decisions, according to rules, in order to settle disputes without violence. Endless appeals don't always work either -- you actually need a legal reason to appeal beyond "I disliked the decision". You need something like "The judge was wrong on points of law X, Y and Z" and you need the appellate court to agree that there might be something to review. Most appellate courts look pretty dimly on appealing for the sake of appealing. Plus their time is limited, so they will tend to pick cases with broader legal consequences that will impact more than the disputants.

timmyd 16y ago

"Fool me once - shame on you. Fool me twice - shame on me."

KE4ZNR 16y ago
Maybe it is just me being the lowly I.T. Geek I am but I do have a difficult time feeling any sympathy for the "Wonder Twins". They were set for life before pursuing this litigation and will still be set even with this ruling. I guess since I was not lucky enough to be born in the "Silver Spoon" way of living it makes my care threshold for them set very low :)

deleted 16y ago

[deleted]

leviathant 16y ago
Was a jury involved with this decision?
- esoteriq 16y ago
  No - this is an appeal, no juries involved. Judges rule the appeal-land. But I'm sure Kozinksi (sp?) saw the social Network. Heh.
- deleted 16y ago
  [deleted]

cabalamat 16y ago

They should think themselves lucky to get $65 million for essentially nothing. They are really no different from people who post on Craigslist that they have a great new startup idea and just need someone to code it for them. The only difference is that because they are rich and well-connected they were able to unjustifiably extract money from Zuckerberg, who unlike them made something people want.

Jabbles 16y ago
In terms of facebook's most recent valuation, you could argue that the idea was "0.1%", and execution the 99.9%, in line with the general HN agreement that "ideas are nothing, execution is everything". (That is, of course, assuming that MZ owes them anything for the idea.)
- deleted 16y ago
  [deleted]
phlux 16y ago
I have no love for the twins, however I also cant agree with your statement. There is a difference between posting on CL with an idea. and having an idea/site and plan laid out - recruiting a developer who decides to work with you who obviously would add value to the design/plan - and then him turning around after agreeing to work with you and implementing his own version of it. If, for example, he had read an ad on CL - which the ad alone ignited something inside him and he went and implemented it on his own - then I could agree. He was recruited and agreed to work on the project for/with them. Then, he fucked them over in the negotiations as well. Anyway this is looked at, Zuckerberg is a complete douchebag. Successful? Yes. Within legal rights? Sure - but an amoral untrustworthy douchebag none-the-less. I am not saying the twins should receive [whatever it was they were seeking] - but I am tired of people defending mark zuckerberg.
- dasil003 16y ago
  Sure, Zuckerberg acted unprofessionally, and so they do probably deserve something. But it's important to realize that they came out ahead by $65m. There's not a chance in hell that if Zuckerberg had simply delivered what they asked and then severed ties in an ethical manner that they would have created a company worth anywhere near that.

grellas 16y ago

If anyone still cares, this was the case that created such an uproar last May when it was widely reported that Mark Zuckerberg had been accused of committing "securities fraud," allegedly adding to his supposedly shady legal woes (prior HN discussion here: http://news.ycombinator.com/item?id=1362379 http://news.ycombinator.com/item?id=1362379). In fact, the securities-fraud claim was merely some legal legerdemain by which the Winklevoss brothers sought to set aside the $65 million settlement they had struck with Facebook in their quest to obtain more. It is basically absurd to say that a party settling a legal case must comply with the disclosure laws for making a private placement in offering a stock component as part of a settlement package in a mediation context. The Ninth Circuit panel here obviously agreed, and the writing was on the wall on this issue even after the oral argument held three months ago (see my comment here: http://news.ycombinator.com/item?id=2096370 http://news.ycombinator.com/item?id=2096370). The case is not necessarily dead, at least in theory, since the Winklevoss brothers might petition to have it reconsidered en banc by the full Ninth Circuit and can file for a writ to the Supreme Court. At this stage, though, such options are long-shot options at best. I note one irony in passing. The ratio of the stock value to cash payment that made up the original settlement was not coincidental. The $65 million value consisted of 1.2 million Facebook shares originally valued at $45 million plus $20 million in cash. Receipt of such stock is a taxable transaction and, indeed, would constitute ordinary income to the Winklevoss brothers. Thus, they were to have received $65 million in taxable income, including $20 million in cash to help cover the tax. But that was then. Having chosen to fight the issue, they would not have realized any form of taxable income on this deal until they actually received the stock. As a result, when they now receive the cash/stock package, they will realize an estimated $170 million in taxable income (the cash plus FB stock worth $150 million), with only $20 million to help defray taxes. That stock will not be immediately marketable, even on the secondary exchanges and will require FB's permission to be sold there. The net result, unless I mis-analyze, is that the Winklevoss brothers have by their choosing to fight managed to convert over $100 million in stock value from what would have been a long-term capital gain into ordinary income, will have to pay much higher taxes accordingly, and will (I would assume) be faced with a serious logistical problem in the form of a short-term cash squeeze in raising funds to cover the taxes. I am not a tax specialist and may be wrong on this, but I don't think so. FB dodged a bullet on this one. Had the settlement been set aside, the liability overhang would very likely have messed up its IPO, among other serious consequences. That was the gamble apparently made by the Winklevoss brothers - that they would be able to exact a much larger settlement as a result of their leverage obtained from having the issues re-opened. It appears, though, that they gambled and lost and not without detriment to themselves. For its part, FB now seems to be in the clear.

yuhong 16y ago

Personally I wonder why the IMs were not revealed until after the settlement.