Founder of File-Sharing Site Megaupload Arrested

Associated Press + More

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

Police arrested founder Kim Dotcom and three Megaupload employees 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.

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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 enough for U.S. prosecutors 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.

He said police seized more than $8 million, money that was invested in various New Zealand financial institutions and which has now been placed in a trust pending the outcome of the cases.

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

Dotcom's lawyer raised objections to a media request to take photographs and video, but then Dotcom spoke out from the dock, 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 power attorney Bob Bennett to defend it, 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.

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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 Craigslist shut down in protest of two congressional 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.