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4
Oct 10
Mon

Some questions arising from The Social Network

In The Social Network, Eduardo Saverin, Facebook’s slighted CFO gets his shareholdings diluted from about 35% all the way down to 0.03%, while the other shareholders maintain their holdings in proportion. I have a reasonable understanding about how VC investment works, but I didn’t understand how this was possible. Others have wondered the same thing.

In reality (if you believe what was reported by Gawker), Saverin appears to have been regarded by Zuckerberg to have been holding up the progress of the business. To reduce the influence on company affairs that came with a shareholding as substantial as Saverin’s, Zuckerberg incorporated a Delaware Corporation (as happened in the movie), which then acquired the outgoing Florida LLC. Saverin was simply given less shares in the new corporation. Litigation and Trial writes that if this was the case, it was a “blatant violation of fiduciary duty and a blatant act of minority shareholder oppression”. The problem can be kind of solved by a shareholder ratification of the action, but are we really to believe that Saverin would have just signed off on something like that? (It seems like he really did make $300k betting on futures, so he surely would’ve been able to get legal advice on the deal.)

Anyway, post-settlement, Saverin owns about 5% of the company, making him a billionaire.

Litigation and Trial also writes an interesting article about why Zuckerberg won’t sue for defamation.

And moving off the legal issues, Jezebel questions the unflattering portrayal of women in the movie.

Random trivia: apparently, where I sit at work now is about 5 metres away from where Zuckerberg used to sit (a couple years ago when Facebook was still in downtown PA).

  8:54pm  •  Law  •  Movies  •   •  Tweet This  •  Add a comment