[tlrobinson]

Also, why didn't he resolve the situation by either starting a new company or buying back his shares as soon as it was apparent Facebook could become something big?

[dedward]

No corporation or shares existed at the time the work for hire was done....

[mkramlich]

possibly because he is/was young and naive

[tlrobinson]

Yes, but this is the sort of thing that should have come up during the due diligence of the very first round of funding.

[zackattack]

Can someone please clarify the ethical as well as legal ramifications of subverting investors by starting a new company?

For example: You start company A, in market M. Your investors give you 5k in exchange for 50%. You spend your 5k learning about market M and now you're diluted. What's stopping you from creating company B, to attack same market, but from an enhanced perspective?

[michael_dorfman]

In many cases, there are contracts in place to prevent exactly that.

When I cashed out of my first startup, I was legally prohibited for working in that domain for X years.