Megaupload founder’s homes raided, $5M in luxury cars seized.

By msnbc.com staff and news services – Image: Wikipedia.org

Police in New Zealand on Friday raided several homes and businesses linked to the founder of Megaupload.com, a giant file-sharing site shut down by U.S. authorities, and seized guns, millions of dollars, and nearly $5 million in luxury cars, officials said.

Police arrested founder Kim Dotcom and three Megaupload employees Thursday on U.S. accusations that they facilitated millions of illegal downloads of films, music and other content, costing copyright holders at least $500 million in lost revenue. Extradition proceedings against them could last a year or more.

With 150 million registered users, about 50 million hits daily and endorsements from music superstars, Megaupload.com was among the world's biggest file-sharing sites. According to a U.S. indictment, the site, which was shut down Thursday, earned Dotcom $42 million in 2010 alone.

Although the company is based in Hong Kong and Dotcom lives in New Zealand, some of the alleged pirated content was hosted on leased servers in Virginia, and that was gave U.S. prosecutors jurisdiction to act.

New Zealand police served 10 search warrants at several businesses and homes around the city of Auckland.

Police spokesman Grant Ogilvie said the seized cars include a Rolls-Royce Phantom Drophead Coupe worth more than $400,000 as well as several Mercedes. Two short-barreled shotguns and a number of valuable artworks were also confiscated, he added.

Pictures posted on Flickr and technology news website Gizmodo showed the haul included a 2010 Maserati and a pink Cadillac. One Mercedes had the personalized license place “MAFIA,”while another had a plated that read “CEO.”

A report by New Zealand news website stuff.co.nz said Detective Inspector Grant Wormald from the Organized and Financial Crime Agency NZ (OFCANZ) gave details of the extraordinary raid, which had been planned for several months.

“Police arrived in two marked police helicopters,” said Wormald, according to the website. “Despite our staff clearly identifying themselves Mr. Dotcom retreated into the house and activated a number of electronic locking mechanisms. While police neutralized these locks he then further barricaded himself into a safe room within the house which officers had to cut their way into.”

Once they gained entry into this room they found Dotcom near a firearm which had the appearance of a sawed-off shotgun, Wormald said.

“It was definitely not as simple as knocking at the front door,” he added.

New Zealand's Fairfax Media reported that the four defendants stood together in an Auckland courtroom in the first step of the extradition proceedings.

'Nothing to hide'
Dotcom's lawyer raised objections to a media request to take photographs and video, but then Dotcom spoke, saying he didn't mind photos or video “because we have nothing to hide.” The judge granted the media access, and ruled that the four would remain in custody until a second hearing Monday.

Dotcom, Megaupload's former CEO and current chief innovation officer, is a resident of Hong Kong and New Zealand and a dual citizen of Finland and Germany who had his name legally changed. The 37-year-old was previously known as Kim Schmitz and Kim Tim Jim Vestor.

Two other German citizens and one Dutch citizen also were arrested and three other defendants — another German, a Slovakian and an Estonian — remain at large.

Megaupload has retained Washington, D.C. power attorney Bob Bennett in the case, according to a person inside the company. Bennett is best known for representing former President Bill Clinton during the Monica Lewinsky scandal. The person within Megaupload spoke on condition of anonymity because he was not authorized to discuss the company's plans.

The Electronic Frontier Foundation, which defends free speech and digital rights online, said in a statement that the arrests set “a terrifying precedent. If the United States can seize a Dutch citizen in New Zealand over a copyright claim, what is next?”

The indictment was unsealed one day after websites including Wikipedia and Wired shut down in protest of two U.S. proposals intended to make it easier for authorities to go after sites with pirated material, especially those with overseas headquarters and servers.

Before Megaupload was taken down, the company 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.

Several sister sites were also shut down, including one dedicated to sharing pornography files.

Retaliation
News of the shutdown seemed to bring retaliation from hackers who claimed credit for attacking the Justice Department's and FBI websites. Federal officials confirmed the Justice Department site was down for hours Thursday evening, and that the disruption was being “treated as a malicious act.”

A loose affiliation of hackers known as “Anonymous” claimed credit for the attacks. Also hacked was the site for the Motion Picture Association of America.

According to the indictment, Megaupload was estimated at one point to be the 13th most frequently visited website on the Internet. Current estimates by companies that monitor Web traffic place it in the top 100.

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 some 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.

Megaupload was unique not only because of its massive size and the volume of downloaded content, but also because it had high-profile support from celebrities, musicians and other content producers who are most often the victims of copyright infringement and piracy. Before the website was taken down, it contained endorsements from Kim Kardashian, Alicia Keys and Kanye West, among others.

The company listed Swizz Beatz, a musician who married Keys in 2010, as its CEO. He was not named in the indictment and, via a representative, declined to comment.

The five-count indictment, which alleges copyright infringement as well as conspiracy to commit money laundering and racketeering, described a site designed specifically to reward users who uploaded pirated content for sharing, and turned a blind eye to requests from copyright holders to remove copyright-protected files.

The Justice Department said it was illegal for anyone to download pirated content, but their investigation focused on the leaders of the company, not end users who may have downloaded a few movies for personal viewing.

A lawyer who represented the company in a lawsuit last year declined to comment Thursday. Efforts by the Associated Press to reach an attorney representing Dotcom were unsuccessful.

 

phil@gadgetables.com

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