The Winklevosses and Narendra, Harvard classmates of Zuckerberg, sued him after he launched Facebook, claiming he had done work for their project and then stolen code from it to start Facebook. They reached a settlement last summer in which Facebook agreed to acquire ConnectU for cash and stock — $20 million in cash and 1.25 million shares of Facebook. But then they fired their former lawyers, Quinn Emanuel, amid a contest over legal fees, the value of the settelement, and new evidence they said they'd discovered.

Based on the price Microsoft paid for its 1.6 percent stake in Facebook in the fall of 2007, the stock component of that settlement was worth $45 million. Quinn Emanuel is seeking $13 million in a contingency fee — 20 percent of the total take, which is $65 million as far as ConnectU's former lawyers are concerned.

But the appraised value of the stock last summer was far less — $11 million, based on a valuation Facebook sought for its own stock-option plan. That's $34 million of $65 million gone.

Even on that lower value for the stock, plus the cash, ConnectU's founders owed taxes. (We hear the deal was structured as a taxable acquisition.) Assuming a capital gains rate of 15 percent and a negligible cost basis for the startup, 15 percent of $31 million. That rounds up to $4.7 million.

Their lawyers want $13 million, leaving them with $2.7 million from the cash component — which they have likely already spent in legal fees.

What about those 1.25 million shares of Facebook? They are essentially worthless. If they could sell them, they would likely get $2.50 to $3 a share. But Facebook recently changed its bylaws to forbid private transfers of its stock without board approval. ConnectU's founders cannot sell them, nor can they give them to their lawyers in lieu of cash, without Facebook's okay. And it is hard to imagine a board of directors essentially controlled by Zuckerberg voting to make life easy for his college rivals. Unless Facebook sells or goes public — both unlikely prospects in the short term — ConnectU's founders have no way of realizing value from their stake. So we can discount their $11 million in notional value from the ConnectU take.

What's left: $2.7 million. Here's a chart showing how you go from $65 million to less than $3 million in four easy steps:

Which explains why the Winklevosses are dragging this thing out. After years of fighting in court, they have essentially nothing to show for their troubles. They come from a wealthy family. Their father, Howard, has a fortune from his company, Winklevoss Technologies, which makes software for analyzing pension plans. So they can afford to fight, and it's not like they need Mark Zuckerberg's money. But how else do the rich keep score?

(Photo by Krupa/AP)

The law firm of Quinn Emanuel Urquhart Oliver & Hedges included the amount of the Facebook settlement in a list of legal victories published in its January newsletter — despite having been fired last year by ConnectU's founders, who sued to have the settlement overturned.

The amount of the settlement, reportedly paid in cash and stock, had never previously been disclosed, and all parties agreed it would be kept confidential. When the Recorder, a San Francisco-based legal publication, noticed the disclosure, the firm's chairman, John Quinn, attempted to persuade a reporter not to publish the figure, citing the confidentiality agreeement.

As a Harvard student in 2003 and 2004, Facebook CEO Mark Zuckerberg did some programming work on ConnectU, a college-based social network, shortly before launching his own site, then known as Thefacebook.com, in February 2004. ConnectU's founders included Olympian-rower twins Cameron and Tyler Winklevoss (shirtless, above), as well as Divya Narendra, whom everyone forgets because he's not a hunky, Kennedyesque Olympian rower with a twin brother. They contend that Zuckerberg took work he did for ConnectU and used it in launching what later became Facebook. Tyler Winklevoss called Zuckerberg's actions "premeditated, well thought out, duplicitous and conniving."

The dispute between Narendra and the Winklevosses and their former lawyers is currently in arbitration; the lawyers are seeking payment of $13 million, while ConnectU's founders want the whole agreement overturned, because of new information they discovered about Mark Zuckerberg's sordid college days.

Here's a hypothetical question: Let's assume Facebook had good legal counsel, and ConnectU's founders are right to be angry at their own lawyers. What do they know about Mark Zuckerberg? And how much is information really worth? It's safe to assume that figure is far more than $65 million.

(Photo via Row2k.com)

The news is hardly bad news for the Winklevoss brothers and ConnectU's third cofounder, Divya Narendra. Court papers say the three will get "millions" of dollars in cash as well as stock in a startup too popular with mainstream America's millennial generation to fail. (The Winklevosses were fighting the settlement after they discovered that the Facebook common stock they would receive was worth less than they supposed.) Plus, there's still that shot at gold.

Apparently, in October 2007, Facebook and Microsoft issued a press release stating Microsoft would “take a $240 million stake in Facebook’s next round of financing at a $15 billion valuation.”... Defendants [Facebook] proffer evidence that subsequent to the press release, in the regular course of its operations, Facebook’s Board of Directors determined a value of the company’s “shares” which was different than the valuation disclosed in the press release.

So while Facebook was happy to sell 1.6 percent of the company to Microsoft for $240 million for a $15 billion valuation last fall — and tell the press all about it — remember, that doesn't mean the company is actually worth $15 billion. In fact, a Silicon Alley Insider commenter reports: "Try $2 billion to $3 billion. An owner is out trying to peddle common stock to VC's right now. The price is under $4 billion for sure."(Photo by AP/Ruttle)

Since the Facebook-ConnectU settlement was likely part-cash, part-stock, one possibility is that the ConnectU founders feel misled by the value of the equity portion of the settlement and believe that fraudulent representations about its value were made to them.

Could be. Or it could be that the Winklevoss' and Narendra don't have much going and need more than they originally agreed to. ConnectU has about 2,000 users and the founders' last law firm, Quinn Emanuel, recently filed a lien against Connect for any bounty turned up in court going forward. (Photo by AP/Krupa)

We don't have inside information, but simple logic tells us the cleanest way to handle this is an acquisition. Buying ConnectU gives its founders a payoff, which they greatly desire, for an otherwise worthless company. For Facebook, buying ConnectU makes the issue of who owns its code moot. While Facebook's executives have been urging Zuckerberg to end the lawsuit for a while, new Facebook COO Sheryl Sandberg has to have weighed in favoring a settlement. At Google in 2004, Sandberg watched as the company handed over 2.7 million shares to settle claims that Google had infringed on Yahoo's patents. It's a history lesson that makes us wonder: After Zuckerberg rebuffed its $1 billion offer, why didn't Yahoo buy ConnectU?

Probably the biggest surprise last night was that despite Facebook's busy day announcing new features to allow users to spam each other, one of the company's Harvard connections still showed at last night's Founders Club party here in New York. Which one? ConnectU founder and litigious claimant to the Facebook throne, Divya Narendra, of course.

What, you were expecting Adidas? I asked Narendra what he really thinks of Zuckerberg, but he wouldn't. Didn't want to piss off his lawyers. Narendra was happy to dish on fellow wannabe Facebook founder Aaron Greenspan, however.

"I have no idea how he got that New York Times article," Narendra told me. "He has nothing to do with any of this."

Bitches just jealous.

New York angel investor Ron Conway also turned up last night. I'd have snapped a photo of him, but for a big fella, the man pulls a mean pirouette at the sight of a camera. And did you really want to see a photo of his backside? Silicon Alley wantrepreneurs are not allowed to answer that.

One thing I didn't know about Adelson: Apparently he lives in Dutchess County, north of New York, and commutes to San Francisco to run Digg. Does this mean we can claim him for Silicon Alley? (Ed.'s note: No.)

CollegeHumor's Zach Klein and Ricky Van Veen also showed, dragging down the whole affair with their ironic style and funny-looking glasses. They only cost $7 dollars on eBay. Father figures Josh Mohrer of BustedTees and Vimeo's Jonathan Marcus mostly managed to keep the boys in line, though dress code violations (sneakers) barred the entire crew from the Rainbow Room afterparty. Nobody said beauty was easy, fellas.

• A brief history of Facebook's legal woes
• Tyler Winklevoss rows against the Facebook tide
• Facebook's wannabe founders
• Facebook's lawsuit that won't go away

Earlier this week, CNBC asked me to come on the air to discuss Facebook's legal woes. I've spent days immersed in legal filings, and the clip, above, just scratches the surface of what I've learned. Next week comes a critical moment for Facebook, the red-hot social network that has captured Silicon Valley's imagination, and its founder and CEO, Mark Zuckerberg. After the jump, I explain why Zuckerberg will face a moment of reckoning next Wednesday, July 25, and detail a timeline of Facebook's legal battles.

In November 2003, as a student at Harvard University, Zuckerberg fell in with three classmates who were working on a new idea: ConnectU, a set of interlinked social networks for people at a single college. Zuckerberg did some work for them, but then launched his own website — what's now known as Facebook. The result: A lawsuit that just won't end. Next Wednesday, in a Boston courtroom, Zuckerberg's lawyers have their best shot at making it go away for good, at a hearing on a motion to dismiss the lawsuit.

Legal experts say that Zuckerberg's best shot is to get the suit dismissed on a technicality, by making a claim that the statute of limitations ran out on his opponents' charges on February 4, 2007, three years after Zuckerberg first launched Facebook.

That's a tough one, but more likely than the alternative, which is getting it dismissed on the substance of the case. One lawyer described ConnectU's charges as "squishy," which sounds bad — but in a hearing on a motion to dismiss, squishy is actually a good thing. If there's any doubt on whether a claim is valid, in such a hearing, the judge's inclination will be to let it go forward to trial. And a trial, with all its uncertainty, is the last thing Zuckerberg needs, with his stated plans to keep Facebook independent and apparent goal to pursue an IPO.

It all comes down to timing, then. With that, here's how Zuckerberg got into this legal spot. Anything missing? Let me know in the comments, and I'll update it.

December 2002: Harvard students Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra conceive of a college social network and hire Sanjay Mavinkurve to work on what later becomes ConnectU

May 2003: Mavinkurve graduates from Harvard, with the site still unfinished; Victor Gao, another Harvard student, later picks up work on the site

November 2003: After Gao leaves the project, ConnectU's founders hire Mark Zuckerberg to work on Harvard Connection, a website that later became ConnectU

January 11, 2004: While still promising to finish Harvard Connection, Zuckerberg registers the domain for thefacebook.com, a fact that the ConnectU founders allege that didn't disclose in a meeting three days later

February 4, 2004: Zuckerberg launches thefacebook.com

April 2004: Facebook expands to other colleges

April 13, 2004: Zuckerberg, Dustin Moskowitz, and Eduardo Saverin form Thefacebook.com LLC, a partnership (despite this, Saverin is not credited today as a founder by the company)

Spring 2004: ConnectU hires a Web-development firm, iMarc

May 2004: Cameron Winklevoss allegedly emails his father detailing a plan to steal email addresses from Facebook's website

May 2004: Having appealed to Harvard administrators, without success, to rule that Zuckerberg violated the school's honor code, ConnectU's founders appeal to Harvard president Larry Summers, who also rebuffs them

May 21, 2004: ConnectU launches its first website, Harvard Connection

June 11, 2004: ConnectU's founders allegedly ask iMarc to write a script that automatically logs into the Facebook website and harvests users' email addresses; iMarc refuses

July 22, 2004: ConnectU's founders allegedly send thousands of emails to Facebook users inviting them to join ConnectU

September 2, 2004: ConnectU files a lawsuit against Zuckerberg and other Facebook founders

February 2005: Facebook blocks ConnectU's alleged continued attempts to harvest emails from its website

May 26, 2005: Accel Partners invests $13 million in Facebook

August 23, 2005: Facebook, at bad-boy entrepreneur Sean Parker's instigation, buys the facebook.com domain name for $200,000

October 14, 2005: Facebook's founders file a motion to dismiss ConnectU's lawsuit

September 11, 2006: Facebook allows any user with an email address to join the site, and its user base begins to grow explosively

March 9, 2007: Facebook files a countersuit against ConnectU, charging it, among other things, with violating antispam laws

March 28, 2007: A court dismisses ConnectU's original lawsuit, without prejudice, allowing ConnectU to immediately file a new lawsuit against Facebook's founders as well as the company itself

June 23, 2007: Court grants a hearing on a motion to dismiss ConnectU's lawsuit against Facebook, scheduled for July 25

Where he goes too far is whe he tries to pretend that he, twin brother Cameron, and partner Divya Narendra — Facebook-founder wannabes, all three — are just trying to right a wrong, not trying to win a big legal settlement:

We've been pursuing this since Facebook had 200 users. We are fully prepared to go all the way.