In what the federal authorities on Thursday called one of the largest criminal copyright cases ever brought, the Justice Department and the Federal Bureau of Investigation seized the website MegaUpload and charged seven people connected with it with running an international enterprise based on Internet piracy. Four of the seven indicted were arrested in Auckland, New Zealand, and charged with conspiracy to commit racketeering, money laundering, and criminal copyright infringement, including MegaUpload’s founder Kim Dotcom, chief marketing officer Finn Batato, cofounder and CTO Mathias Ortmann, and BOFH Bram van der Kolk. New Zealand reports state that three others, graphic designer Julius Bancko, business development manager Sven Echternach and software development head Andrus Nomm, are “still at large”.
Dotcom, 38, and the three others were arrested after New Zealand police raided his country estate at the request of the U.S. Federal Bureau of Investigation. Police cut Dotcom out of a safe room he had barricaded himself in, because, according to his layer, he was frightened and panicked.
U.S. authorities want to extradite Dotcom on charges he masterminded a scheme that made more than $175 million in a few short years by copying and distributing music, movies and other copyrighted content without authorization, causing damage to copyright owners of US $500 million.
“The individuals and two corporations – Megaupload Limited and Vestor Limited – were indicted by a grand jury in the Eastern District of Virginia on Jan. 5, 2012, and charged with engaging in a racketeering conspiracy, conspiring to commit copyright infringement, conspiring to commit money laundering and two substantive counts of criminal copyright infringement,” the US Department of Justice said in a statement on Thursday.
” The individuals each face a maximum penalty of 20 years in prison on the charge of conspiracy to commit racketeering, 5 years in prison on the charge of conspiracy to commit copyright infringement, 20 years in prison on the charge of conspiracy to commit money laundering and 5 years in prison on each of the substantive charges of criminal copyright infringement.”
Dotcom’s New Zealand lawyer, Paul Davison, said in court that MegaUpload’s business simply offered online storage, was being misrepresented and authorities were being aggressive to add drama to the case. “His business did not reproduce or copy material as alleged,” he told the court, adding that copyright holders had been given access to MegaUpload to identify improper posting of material. He likened the site to the popular YouTube video site, where people “promoted their creativity.”
In New Zealand, questions are being asked about how Dotcom, who moved to the country in 2010, could be given permanent residency under a business investor scheme despite criminal convictions for insider trading.
In spite of a past that includes accusations of investment fraud and convictions for computer fraud and handling stolen goods, Dotcom (who changed his name from Kim Schmitz) amassed a fortune that allowed him to rent a vast multi-million-dollar mansion near Auckland in New Zealand, with manicured lawns, fountains, pools, palm-lined paths and extensive security.
In keeping with Dotcom’s lavish lifestyle and tastes, he had ordered around $3.2 million in renovations to the sprawling mansion, including a heated lap pool built just off the master suite, with underwater speakers, imported spring water and a custom ladder worth around $12,500.
“It’s insane, and it gets more insane inside. When we were there we called it ‘extreme home makeover, millionaire edition’,” a source close to the teams that did renovation work said.
MegaUpload was primarily hosted in Virginia by a web hosting provider called Carpathia Hosting. Carpathia leased more than 1000 servers with a total of 25 petabytes of storage to MegaUpload.
MegaUpload had its second big data center in the Netherlands, where web host Leaseweb rented and hosted close to 700 servers for the company.
MegaUpoad users paid more than $110 million to the company via PayPal.
The MegaUpload imperium employed more than 30 people in 9 different countries.
The FBI and foreign authorities seized close to 60 bank accounts as well as various PayPal accounts.
Authorities also seized around 30 cars and motorcycles, including a number of Mercedes-Benz cars with novelty license plates like “STONED”, “GUILTY” and “MAFIA.”
Dotcom allegedly owns 68 percent of MegaUpload as well as its image hosting site Megapix.com and the affiliate site Megaclick.com. He owns 100 percent of Megavideo.com, Megaporn.com and Megapay.com. The FBI estimates that he personally made around $42 million, or $115,000 a day, during 2010 from his empire.
Mathias Ortmann, a long-time collaborator with Schmitz who was arrested on Thursday as well, owns 25 percent of the Mega empire. He co-founded MegaUpload and has been serving as the company’s CTO. Ortmann made $5 million in 2010.
The MegaUpload crew kick-started its Megavideo hosting site by copying videos from YouTube, and the indictment quotes from internal emails stating: Do we have a server available to continue downloading of the Youtube’s vids? … Kim just mentioned again that this has really priority.” Another email stated: “Kim really wants to copy Youtube one to one.”
Some of the emails show that MegaUpload had an interesting policy on when to follow take-down requests. When asked by Warner to take down files, the site’s CTO wrote in an internal email: “We should comply with their request — we can afford to be cooperative at current growth levels.”
Other emails show how executives discussed cash rewards for uploaders who had provided specific DVDs and other copyrighted works. Further emails show how some of the executives scoured their own service to download copies of The Sopranos and various music albums.
The indictment even includes chat logs with conversations between company executives, which include statements like: “we have a funny business . . . modern days pirates :)”
Read, download, or print out the entire official 72-page federal indictment right here at The Dirty Lowdown! Just click on the following link to scribd.com and a reader with the full indictment will pop-up, ready for action:
How MegaUpload Allegedly Works
MegaUpload has boasted of having more than 150 million registered users and 50 million daily visitors, according to the FBI indictment. At one point, it was estimated to be the 13th most frequently visited website on the Internet.
Users could upload material to the company’s sites which then would create a link that could be distributed. The sites, which included video, music and pornography, did not provide search capabilities but rather relied on others to publish the links, the indictment said.
Users could purchase memberships to the site to obtain faster upload and download services, the primary source of revenue. Material that was not regularly downloaded was deleted and financial incentives were offered for popular content, according to the charges.
The web page with the link to the copyrighted material would include advertisements, another source of revenue.
If copyright holders complained about a specific link to the website, prosecutors said MegaUpload.com would remove that link, but scores of others existed to the same material, according to prosecutors.
Other material found uploaded included child pornography and terrorism propaganda videos, according to the indictment. The US government’s investigation began in March 2010.
Fifteen minutes after MegaUpload disappeared from the internet, the hacker group Anonymous launched denial of service attacks on the following websites:
Department of Justice (Justice.gov)
Motion Picture Association of America (MPAA.org)
Universal Music (UniversalMusic.com)
Belgian Anti-Piracy Federation (Anti-piracy.be/nl/)
Recording Industry Association of America (RIAA.org)
Federal Bureau of Investigation (FBI.gov)
HADOPI law site (HADOPI.fr)
U.S. Copyright Office (Copyright.gov)
Universal Music France (UniversalMusic.fr)
Senator Christopher Dodd (ChrisDodd.com)
Vivendi France (Vivendi.fr)
The White House (Whitehouse.gov)
Warner Music Group (WMG.com)
“MegaUpload was taken down w/out SOPA being law. Now imagine what will happen if it passes. The Internet as we know it will end. FIGHT BACK,” Anonymous said in a tweet.
The Twitter account under the name @YourAnonNews identifies itself as the hacker collective and states: “We are Anonymous, We are legion, We never forgive, We never forget, Expect us.”
The independent tracking service, Akamai, who offers a free real-time tracking service of DDoS attacks, is currently reporting 218 attacks in the last 24 hours, many centered on America. According to the company, that’s 24% above average.