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Megaupload's Kim Schmitz arrested in Auckland, site shut down

Friday 20 Jan 2012 9:35a.m.

Megaupload defendants remanded in custody

By Dan Satherley, James Murray and AP staff

One of the world's largest file-sharing sites was shut down this morning, its founder arrested in Auckland, and several company executives charged with violating piracy laws, US federal prosecutors said.

An indictment accuses Megaupload.com of costing copyright holders more than US$500 million in lost revenue from pirated films and other content. The indictment was unsealed one day after websites including Wikipedia and Craigslist shut down in protest of two congressional proposals intended to thwart online piracy.

The Justice Department said in a statement said that Kim Dotcom, formerly known as Kim Schmitz, and three others were arrested Friday morning north of Auckland at the request of US officials. Two other defendants still at large are not believed to be in New Zealand.

At around 4:45pm today, police raided an Albany address in relation to the Megaupload arrests, removing jet skis and equipment.

Schmitz appeared in North Shore District Court at 4pm this afternoon.

He spoke from the dock, overriding his lawyer to allow cameras to film him in court.

All four of the defendants appeared in the dock, they were remanded in custody to appear in the North Shore District court again on Monday morning.

Dotcom is founder, former CEO and current chief innovation officer of Megaupload.

The arrest was carried out by the Organised & Financial Crime Agency New Zealand and police following a "mutual legal assistance request from the US to arrest individuals for the purpose of extradition".

Three properties were searched, and four arrested – three at Dotcom's place in Coatesville, and one in Orakei.

A total of 76 police and armed offenders squad officers were involved, as well as four FBI agents who assisted with the inquiry, but not the raid itself.

Police say when they arrived at Dotcom's property at 6:45am, at first Dotcom's bodyguards would not let them in. There were 15 people at the house at the time, including employees and family members.

Two shotguns were found on the property, police are looking into whether these are restricted weapons in New Zealand.

All those arrested this morning will appear in the North Shore District Court this afternoon.

Police have also seized luxury cars with an estimated total value of up to $6m.

These include a Rolls Royce Phantom Drophead Coupe valued at over NZ$500,000. Over $10m has also been seized from NZ financial institutions, including New Zealand government bonds.

"The FBI contacted New Zealand police in early 2011 with a request to assist with their investigation into the 'Mega Conspiracy'," says Det Insp Grant Wormald.

"We were happy to provide this assistance. Staff from OFCANZ and New Zealand police have worked with the US authorities over recent months to effect today's successful operation.

"All the accused have been indicted in the United States. We will continue to work with the US authorities to assist with the extradition proceedings."

The US Justice Department's indictment against the Megaupload defendants reveals a long list of assets to be forfeited as part of today’s arrests.

It also gives details on how Megaupload conducted its file sharing business, including a strategy whereby users were offered cash or other financial incentives to upload popular content, often under copyright, to the website.

Evidence in the indictment includes incriminating emails from the defendants and users and details of bank transfers involving large sums of money.

The copyright infringements list specific films including the Twilight Saga and the first instalment of the final Harry Potter movie.

Income generated from the conspiracy is listed as $175 million (US) and this is also required as part of the forfeiture.

ANONYMOUS FIGHTS BACK

Online activists Anonymous struck back almost instantly, shutting down both the US Justice Department and Universal Music's websites in a response called 'Operation Megaupload'.

Soon after, websites for the Motion Picture Association of America, British record label representatives BMI and the US Copyright office were also targeted, as well as the sites belonging to the FBI and the White House. Tech website Gizmodo called it "easily the widest in scope and ferocity we've seen in some time".

“It was in retaliation for Megaupload, as was the concurrent attack on Justice.gov,” said Anonymous operative Barret Brown.

Mr Brown also said: “more is coming” and other members of Anonymous are pursuing a joint effort with others to “damage campaign raising abilities of remaining Democrats who support SOPA”.

DOTCOM'S BATTLE TO LIVE IN NEW ZEALAND

Dotcom lives at the Chrisco mansion in Coatesville, north of Auckland, which he rents.

His application to buy it was declined by the Overseas Investment Office last year, according to the National Business Review. His application was initially approved, but then denied after then Associate Finance Minister Simon Power and Land Information Minister Maurice Williamson decided he did not meet the 'good character' test, according to the New Zealand Herald.

His application for residency was approved after he invested $10 million in government bonds and made a donation to the Christchurch earthquake fund, despite admitting two convictions – one for hacking, and another for insider trading.

Dotcom says the convictions were wiped under a German "clean slate" law.

"Officially I am as clean as it gets," he said last year.

"I am not a bad person with a bad character and, in my opinion, Simon Power is small minded and unreasonable.

"In New Zealand, murderers have been released from prison within a decade. You would think that the New Zealand Government believes in giving people a second chance."


Kim Dotcom with a friend, as posted on his Facebook page

MUSIC STARS' SUPPORT FOR MEGAUPLOAD

Megaupload was unique not only because of its massive size and the volume of downloaded content, but also because it had support from celebrities, musicians and other content producers who are most often the victims of copyright infringement and piracy. 

In December, several high-profile artists including Kanye West, Will.I.Am, P Diddy, Chris Brown and Alicia Keys starred in a music video in support of Megaupload.

Universal Music had it taken down, but Megaupload filed a lawsuit arguing the video was not owned by Universal, and YouTube reinstated the video.

The Hong Kong-based company listed Swizz Beatz, a musician who married Keys in 2010, as its CEO.

Before the site was taken down, it posted a statement saying allegations that it facilitated massive breaches of copyright laws were "grotesquely overblown".

"The fact is that the vast majority of Mega's internet traffic is legitimate, and we are here to stay. If the content industry would like to take advantage of our popularity, we are happy to enter into a dialogue. We have some good ideas. Please get in touch," the statement said.

A lawyer who represented the company in a lawsuit last year declined comment.

Reports in the Hollywood Reporter suggest that Gin Wigmore was thought to have been used in the video, but Macey Gray was chosen to sing in her place.

EXTRADITION TREATY QUESTIONED

Many New Zealand-based Twitter users this morning have been questioning whether agreements between the US and New Zealand allows extradition for copyright infringement.

Left-wing blogger Idiot/Savant tweeted: "copyright infringement is not an extraditeable (sic) offence according to the NZ-US treaty".

But legal blogger tweeted Graeme Edgeler said "people can be extradited from NZ to US for ANY offence that in both countries carries a penalty of at least 12 months' imprisonment".

 


Kim Dotcom, millionaire founder of Megaupload (Reuters)

HOW DID MEGAUPLOAD MAKE MONEY?

Megaupload is considered a "cyberlocker", in which users can upload and transfer files that are too large to send by email. Such sites can have perfectly legitimate uses. But the Motion Picture Association of America, which has campaigned for a crackdown on piracy, estimated that the vast majority of content being shared on Megaupload was in violation of copyright laws.

The website allowed users to download films, TV shows, games, music and other content for free, but made money by charging subscriptions to people who wanted access to faster download speeds or extra content. The website also sold advertising.

The indictment was returned in the Eastern District of Virginia, which claimed jurisdiction in part because some of the alleged pirated materials were hosted on leased servers in Ashburn, Virginia.

Dotcom, a resident of both Hong Kong and New Zealand, and a dual citizen of Finland and Germany, made more than $42 million in 2010 alone, according to the indictment.

Those charged in addition to Dotcom are: Finn Batato, 38, a citizen and resident of Germany, who is the chief marketing officer; Julius Bencko, 35, a citizen and resident of Slovakia, who is the graphic designer; Sven Echternach, 39, a citizen and resident of Germany, who is the head of business development; Mathias Ortmann, 40, a citizen of Germany and resident of both Germany and Hong Kong, who is the chief technical officer, co-founder and director; Andrus Nomm, 32, a citizen of Estonia and resident of both Turkey and Estonia, who is a software programmer and head of the development software division; Bram van der Kolk, aka Bramos, 29, a Dutch citizen and resident of both the Netherlands and New Zealand, who oversees programming and the underlying network structure.

AP / 3 News

 
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