MegaUpload's Owner Faces Charges in Court

Kim Dotcom stands before a New Zealand court facing on Friday. Image is from a screen capture of 3News.co.nz

The German-born but New Zealand-based founder of MegaUpload, Kim Dotcom, 37, appeared in court today n Auckland, New Zealand, after his arrest. Three others associated with the company also made court appearances.

Items seized during an accompanying legal sweep included luxury cars with a total value of nearly $5 million according to the New Zealand police. Additionally, about $8 million in assets were seized from New Zealand financial institutions, police said.

The four Auckland-based men arrested in relation to the MegaUpload case appeared in the North Shore District Court in New Zealand today.

MegaUpload founder Dotcom told the judge in the case that he and the other defendants had no problems with filming, photography, or other coverage of the case.

"We have nothing to hide," Dotcom said.

Bail applications will be dealt with on Monday morning, the judge said. The accused were remanded into custody until then. Lawyers acting for the U.S. government were opposed to bail for all of the four defendants.

The New Zealand Arrests

The arrests were carried out by the Organised & Financial Crime Agency New Zealand (OFCANZ) and New Zealand Police, following "a mutual legal assistance request" from the United States.

The New Zealand police issued a release today saying the people arrested were at addresses in Coatesville and Orakei, which are both near Auckland. "A total of 10 search warrants were executed at residential and business addresses across Auckland," the police said.

The investigation into MegaUploads appears to have been in progress for some time.

"The FBI contacted New Zealand Police in early 2011 with a request to assist with their investigation into the Mega Conspiracy," said Detective Inspector Grant Wormald. "We were happy to provide this assistance. Staff from OFCANZ and New Zealand Police have worked with the U.S. 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 U.S. authorities to assist with the extradition proceedings," Wormald said.

Also Arrested

The FBI's list of those arrested in Auckland includes another New Zealand resident, Bram van der Kolk (29), as well as two others mentioned in the U.S. indictement: Finn Batato (38) and Mathias Ortmann (40).

The charges levelled at Dotcom and others in the indictment include: Engaging in a racketeering conspiracy, conspiring to commit copyright infringement, conspiring to commit money laundering, and two substantive counts of criminal copyright infringement.

The FBI has issued a press release which claims that MegaUpload had generated more than $175 million in "criminal proceeds."

(See Related: What MegaUpload's Demise Teaches about Cloud Storage)

The FBI said law enforcement had executed more than 20 search warrants in the U.S., New Zealand, and seven other countries, and seized more than $50 million in assets.

"This action is among the largest criminal copyright cases ever brought by the United States and directly targets the misuse of a public content storage and distribution site to commit and facilitate intellectual property crime," the statement said.

MegaUpload, MegaVideo, MegaLive and MegaPorn are all offline this morning, New Zealand time.

Shortly before the shutdown MegaUpload released a statement to say that "the vast majority of Mega's internet traffic is legitimate, and we are here to stay."

Kim Dotcom with friend from an image posted to his Facebook page
The statement also said the company was happy to work with "the content industry" on a solution.

Background

Dotcom, who had his name legally changed from Schmitz, recently courted controversy when MegaUpload hired a bevy of celebrities to make a music video about the website. The video featured Will.i.am, Kim Kardashian, and Alicia Keys.

The video has received nearly 12 million views. Take a look:

The Universal Music Group had the video taken down from YouTube, despite having no claim to the content. It has since been reinstated.

More New Zealand Information

Kim Dotcom in undated photo courtesy of TorrentFreak.com

Detective Inspector Wormald said he had been personally involved since August last year, after being contacted by the FBI and asked for assistance. He acknowledged that the work done by the FBI and his own team on the complex investigation was excellent.

He was unable to give details of financial institutions being investigated for assets relating to the investigation.

DI Wormald made it clear that the New Zealand portion of the investigation was part of an ongoing investigation spanning the globe and that the FBI was in the lead.

When asked whether those arrested had breached New Zealand copyright laws, Wormald said: "I think it's more than likely that they have. Can't say that with surety."

Wormald also said that those arrested were unlikely to be charged under New Zealand laws. "We're investigating the scene," he said, "but there's no intention to [charge them under New Zealand laws]."

PC World New Zealand asked what would happen with any computer equipment seized at the premises being searched, and DI Wormald said it would be inventoried to Crown Law, which would liaise with the U.S. Department of Justice to decide what would happen to any computer equipment.

Indictment Against MegaUpload

The indictment against MegaUpload involves charges of racketeering, money laundering, and copyright infringement, dependant on several factors.

The claimants say that MegaUpload's limit of 72 minutes of video for non-premium users pushes people towards premium subscriptions in order to watch infringing copies of major-release films (which are generally longer than 72 minutes). Premium subscribers are presented with ads, which form a revenue stream for MegaUpload, as do the premium subscriptions. These form the basis for the money laundering portion of the claim.

The claimants also say that the abuse reporting tool for MegaUpload does not work, since it removes the URLS and ability to search for infringing material, but does not remove the infringing copy itself.

A search warrant in 2010 found 34 infringing copies of movies on a MegaUpload server.

[Read: Has Anonymous Crossed the Line with MegaUpload.com Retaliation?]

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