This is pretty huge, at least for those who buy the myth of angelic Craigslist: eBay has effectively confirmed that cyber cherub Craig Newmark screwed over an early employee to enrich himself, then tried to cover it up.

Valleywag was the first to report, back in 2007, how Newmark and co-founder Jim Buckmaster required the equivalent of a $16 million bribe from eBay to honor an early employee's 25 percent stake in the online classifieds company. The employee, purported Craigslist co-founder Philip Knowlton, had previously agreed to sell his equity to eBay in desperation, for a separate $16 million, after Newmark and Buckmaster tried to dilute his holdings with new shares. People would speak about the incident only anonymously at the time.

But an eBay executive laid out the same story in testimony today in Delaware court, saying Newmark and Buckmaster demanded $16 million and threatened to block the deal if they didn't get it — their ownership award to Knowlton be damned. Their demand amounted to "essentially extortion," the executive, Garrett Price, testified, according to NBC Bay Area and the San Jose Business Journal.

What's more, Price also testified that Newmark and Buckmaster asked that the payment be hushed up to protect Craigslist's altruistic image. That way, Newmark could continue to float preposterous, image-enhancing deceptions like this one, swallowed by Wired and printed as part of an August 2009 profile of Newmark:

Newmark abandoned the idea of running Craigslist as a nonprofit, which would have required him to learn and follow too many rules.... in the meantime he handed out a significant portion of his ownership to others as a way to avoid acquiring too much authority.

So on the one hand, Newmark is telling the press he's intentionally diluting his ownership in the company to keep his ego in check; on the other, he's frantically bolstering that ownership, a process he only halts when he gets a payoff, made to him, at the expense (effectively) of a major shareholder and former employee/co-founder. What's more, as a result of these shenanigans, his quirky indy SF startup is now partly sold out to a big bad tech giant.

Newmark has yet to take the stand. It should be interesting to see how he spins his way out of this one — not only in the court of law, but in the court of public opinion and brand image.