Technology

Judge: Winklevoss Twins Can't Back Out of Facebook Settlement

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The 9th Circuit on Monday refused to let Cameron and Tyler Winklevoss back out of their settlement with Facebook, finding that the brothers had failed to show evidence of securities fraud by the social media site's founder, Mark Zuckerberg.

"The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace," Chief Judge Alex Kozinski wrote in a 15-page ruling. "And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook."

The Winkelvosses accused Zuckerberg of stealing the idea for Facebook from them. They sued him in Massachusetts, and Zuckerberg subsequently countersued in California, alleging that the Winkelvosses and their site, ConnectU, had hacked into Facebook to steal data and customers. A California federal judge had dismissed the Winkevolsses from the case for lack of jurisdiction and ordered the parties into mediation.

Eventually, the Winkelvosses singed a confidential settlement agreement in which they agreed to give up ConnectU in exchange for cash and a piece of Facebook. After signing the agreement, however, the Winkelevosses objected to the value of their Facebook stock. The agreement put the value at $8.88 per share, but the Winklevosses claimed that they were told during negotiations that the stock was worth four times as much, according to the ruling.

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The brothers claimed, among other issues, that this violated the Securities Exchange Act and sought to have the agreement canceled. The three-judge appellate panel in San Francisco found the Winkelvosses' arguments unconvincing, however. "With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity," Kozinski wrote. "For whatever reason, they now want to back out. Like the District Court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached."

Kozinski added that, considering the relative sophistication of the brothers, their lawyers and their father, an accounting professor, it was difficult to believe that they were duped.

"The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world's fastest-growing companies," he wrote. "They engaged in discovery, which gave them access to a good deal of information about their opponents. They brought half-a-dozen lawyers to the mediation. Howard Winklevoss - father of Cameron and Tyler, former accounting professor at Wharton School of Business and an expert in valuation - also participated. A party seeking to rescind a settlement agreement by claiming a Rule 10b-5 violation under these circumstances faces a steep uphill battle."