THE MEGA-LIFE OF KIM DOTCOM
MEGAUPLOAD NETTED MILLIONS FOR ITS JAILED FOUNDER, BUT THE FEDS SAY THE SITE ILLEGALLY DISTRIBUTED OTHERS’ WORK
He looked like a character Hollywood might produce: a giant, swashbuckling, black-suited jet-setter, bikinied babes on his arm, yachts, planes and exotic cars at his disposal. He displayed a villainous visage and a shotgun in his publicity photos, and his fleet boasted “GOD” and “EVIL” on license tags.
But the story of Kim Dotcom, 38, a German born as Kim Schmitz who liked to call himself King Kimble, reaches far beyond a cartoonish persona, self-promotion and a criminal record of pump-and-dump stock fraud.
The former computer hacker is the principle figure behind Megaupload, which U.S. prosecutors charge was a global empire that reaped a mega-fortune from illegal digital distribution of movies, songs and other copyright works.
In a New Zealand jail awaiting extradition to the USA on charges of racketeering, money- laundering and copyright crimes, Dotcom has found himself at the center of a high-stakes battle over Internet freedom vs. copyright protection. It is a fight touching institutions from Congress to Silicon Valley and pitting the recording industry against some hip-hop artists who see Megaupload as a way to bypass record-label middlemen.
Interviews with key players in the case and a close examination of the 72-page indictment and business records in Hong Kong offer a rare inside look at how a small group of computer wizards allegedly made hundreds of millions of dollars, funding Dotcom’s flamboyant life of riches and creating one of the Web’s most popular and controversial sites — a site that came into the government's cross-hairs two years ago after a complaint from the Motion Picture Association of America.
In the days after Dotcom’s arrest, the case has triggered an angry response from the hacker
group Anonymous, which began an attack that briefly shut down websites including the Justice Department, FBI, Universal Music and others.
Despite the arrests of Dotcom and his top officers, and seizure of assets on different continents, Megaupload and its defenders say it was just a repository of computer files for millions of subscribers. The Hong Kong-based service, now shuttered, was as innocent as an Internet search engine or data storage service, Megaupload argues.
“Megaupload is a cloud storage service provider,” says Ira Rothken, a Silicon Valley lawyer representing the company. “People can upload good and bad things. Congress has provided a certain degree of immunity to such providers.”
He attributes the charges and the raid on Dotcom’s $24 million New Zealand mansion to “copyright extremism” on the part of the U.S. government.
A darker picture is painted by the movie and record industries, who saw their hopes for a tough anti-piracy Internet law collapse this month in Congress after an online revolt by sites such as Google and Wikipedia turned public sentiment.
“Megaupload was the largest and most serious threat to copyright infringement in the world,” says Kevin Suh, senior vice president of the Motion Picture Association of America.
“Megaupload had been one of the most popular and notorious file-sharing services in the United States and (was) used predominantly for trading unauthorized content, including music, movies and other copyrighted works,” says Joshua Friedlander, vice president of the Recording Industry Association of America.
The case began two years ago, when Suh says the motion picture lobby reported Megaupload to law enforcement authorities, claiming its member companies were being ripped off to the tune of millions of dollars through illegal use of copyright-protected material.
International investigation
In 2008, a Dutch computer programmer called Bramos traded lighthearted e-mails with a German colleague.
“We have a funny business … modern days pirates :),” Bramos wrote with a typo. “We’re not pirates,” Mathias Ortmann replied, “we’re just providing shipping services to pirates :)”
That exchange and dozens more are in the indictment. The Justice Department charges that, in effect, Bramos and Ortmann were correct: that their “funny business,” Megaupload.com, was a site for people to illegally upload and download movies, TV shows, games and more. Megaupload had 180 million registered users, the indictment says.
A 22-month, Fbi-led investigation involved authorities from Hong Kong, New Zealand, the Netherlands, England, Canada, Germany, Australia and the Philippines. The Justice Department shut down the site as New Zealand authorities arrested four company executives Jan. 20 in Auckland, including founder Dotcom, who had legally changed his name from Schmitz. A fifth was arrested Wednesday, and two remain at large outside the USA. The Justice Department will seek to have the defendants moved to the USA for prosecution.
The indictment describes a group of thirtysomething computer experts creating a website ostensibly for legal file-sharing but turning it into a major international repository for pirated material ranging from popular American films such as Thor and the first Lord of the Rings to recordings by Dutch DJ Armin van Buuren and a BBC Earth TV special, The Power of the Planet.
The criminal charges extend beyond simple copyright infringement, which carries a maximum sentence of five years in prison, and allege racketeering and money-laundering conspiracies, punishable by 20 years.
Prosecutors built their case partly on Megaupload e-mails obtained through a warrant.
In January 2010, when a Megaupload user sent an e-mail asking, “where can we see full movies?”, chief marketing officer Finn Batato directed the person to third-party sites that had links to Megavideo movies. “You cannot find them by searching on MV directly,” he wrote, referring to Megavideo. “That would cause us a lot of trouble ;-)”
Six months later, Dotcom circulated a news article explaining how U.S. authorities were cracking down on copyright infringement by seizing the domain names of nine websites they suspected of showing pirated movies. “This is a serious threat to our business,” he wrote.
Megaupload was created as a type of file-sharing website called a “cyberlocker,” which allows users to upload files to storage sites for sharing with others. Many businesses use cyberlockers legally to share files too big to send by e-mail.
Prosecutors say Megaupload had a unique business model that was “expressly designed to promote” copyright infringement. An “Uploader Rewards” program paid cash or subscription points to people who uploaded files that proved popular, such as hit movies. Megaupload promised to pay $10,000 to someone who uploaded a file that was viewed 5 million times.
Although people could download a limited number of files for free, many bought subscrip- tions to get more material and a faster, smoother transmission of the movie, TV show or song. Megaupload took in $150 million in subscription fees and $25 million from online ads, the indictment says.
Hong Kong base
Kim Dotcom divided his time between a mansion in New Zealand and hotels in Hong Kong. His last corporate base was a group of luxury hotel suites that cost nearly $13,000 a day, according to Hong Kong authorities.
Acting on the U.S. Justice Department’s charges, Hong Kong authorities raided offices and residences affiliated with Dotcom and his partners, and froze more than $42 million in company bank accounts and investment proceeds.
Until last fall, Dotcom lived in the penthouse of the city’s Grand Hyatt hotel with his wife, Mona, a former model from the Philippines, and three children, according to The South China Morning Post. The five-star hotel is across from Hong Kong’s court and government offices. Mona is pregnant with twins, the paper reported.
Hong Kong government filings reviewed by USA TODAY list Dotcom as a director of 10 companies registered in the city, including Megaupload, Megarotic, Megavideo, Megapix and Megamedia. The filings, made from 2002 to 2006, show residential addresses in Finland and on the 39th floor of One Pacific Place, one of Hong Kong’s priciest buildings. The address, however, was a virtual office provider that has since relocated.
The Hong Kong location may have appealed to Megaupload because of the city’s open economy and strong cyber infrastructure, says K.P. Chow, who teaches computer forensics and digital evidence at the University of Hong Kong. Yet Megaupload blocked internet users with Hong Kong IP addresses from its sites. The Hong Kong government, in a news release Jan. 20, said that was “to hinder investigation by law enforcement agencies.”
In an e-mail Feb. 1, 2010, Batato explains to an unidentified recipient that “we can’t deliver (Hong Kong) traffic because the company is based in (Hong Kong) and we don’t want to experience any trouble,” according to the indictment.
The party’s over
When authorities moved in on his New Zealand home, Dotcom and some of his officers were celebrating his birthday. According to The New Zealand Herald, Dotcom retreated to a safe room behind multiple locks. When authorities cut their way in, they found him with a shotgun, one of two found in the mansion. It would have been quite a sight: Dotcom is tall — varying reports put his height at 6-foot-4 to 6-foot-7 — and weighs more than 300 pounds.
In court, New Zealand prosecutors said they found 35 credit cards under various names and three passports — evidence, they suggested, he was a flight risk.
Dotcom has left a trail of aliases, such as “Kim Tim Jim Vestor,” and a variety of corporate names. He legally changed his name to Dotcom after convictions in Germany for hacking and an insider trading scheme. The New Zealand publication Investigatemagazine.com reported in 2010 that Dotcom “pocketed US $1.5 million in profits from spiking the market” value of a website, Letsbuyit.com, with promises of a big investment, then selling his holdings after the stock price rose.
He fled to Thailand in 2002 and was deported back to Germany to stand trial. Dotcom moved on to Hong Kong and ultimately New Zealand, where a $10 million investment in New Zealand securities won him legal residency.
In a note to his neighbors after he leased the mansion outside Auckland two years ago, Dotcom joked that he was “a criminal neighbor” and former hacker convicted of insider trading. “Since then I have been a good boy,” he wrote.
His taste for bling meshed with the world of hip-hop and its “gangsta” culture. A Megaupload promotional video on Youtube features Dotcom with endorsements from urban music figures including Alicia Keys and her husband, musician and producer Swizz Beatz, among others.
Through a publicity agent, Keys declined to comment. Beatz, like others on the video, had no comment. At one point, Megaupload touted Beatz as the company’s new CEO, although there is no evidence he took the job. He had signed on as a consultant because he saw Megaupload as a new way for artists to receive compensation for their work and had been in negotiations for the executive job. Beatz was not named in the indictment.
Another artist, Busta Rhymes, posted support for Megaupload on Twitter after the raid: “1st of all I am soooo proud of my brother @THEREALSWIZZZ 4 being apart of creating something (MEGAUPLOAD) that could create the most powerful way 4 artist 2 get 90% off of every dollar despite the music being downloaded 4 free.” Rhymes could not be reached for comment. Cary Sherman, chairman and CEO of the Recording Industry Association of America, said he believed the artists were supporting their friend, Beatz, without fully understanding Megaupload, which he calls “a sinister scheme to generate massive profits through the distribution of the stolen intellectual property of others.” He said, “I would be very surprised if they knew anything about the Megaupload business model.”
Pirated movies have various origins. Some get out when released to hotels, cruise ships and other venues. DVDS also “leak” during awards season, when copies are distributed to voters, Suh says. A movie in theatrical release can be pirated by people who bring digital camcorders and hightech audio equipment into theaters.
Dotcom’s arrest has stirred a political tempest in New Zealand over how a man with his record and background was let into the country and ended up occupying that nation’s most expensive private home.
Never one to keep his lavish life under wraps, Dotcom had promoted himself in online videos. In a blurb accompanying one that The New Zealand Herald found, Dotcom summed himself up this way: “Fast cars, hot girls, superyachts and amazing parties. Decadence rules.”
In the final credits, he thanked his mother and his psychiatrist.