U.S. Accuses 7 of Broad Infringement of Copyrights ; File-Sharing Site Founder Arrested and His Property Seized in New Zealand

Article excerpt

In a grand jury indictment, the operators of the site Megaupload are accused of causing $500 million in damages to copyright owners and of making $175 million through selling ads and premium subscriptions.

In what the U.S. authorities have called one of the largest criminal copyright cases ever brought, the Justice Department and the F.B.I. have seized the Web site Megaupload and charged seven people connected with it with running an international enterprise based on Internet piracy.

Megaupload, one of the most popular so-called locker services on the Internet, allowed users to transfer large files like movies and music anonymously. Media companies have long accused it of abetting copyright infringement on a vast scale. In a grand jury indictment, Megaupload is accused of causing $500 million in damages to copyright owners and of making $175 million by selling ads and premium subscriptions.

Four of the seven people, including the site's founder, Kim Dotcom (born Kim Schmitz), were arrested Friday in New Zealand; the three others remain at large. Each of the seven people, who the indictment said were members of a criminal group it called Mega Conspiracy, is charged with five counts of copyright infringement and conspiracy. The charges could result in more than 20 years in prison.

As part of the crackdown, about 20 search warrants were executed in the United States and in eight other countries, including New Zealand. About $50 million in assets were also seized, as well as a number of servers and 18 domain names that formed Megaupload's network of file-sharing sites.

The police arrived at Dotcom Mansion in Auckland on Friday morning in two helicopters. Mr. Dotcom, a 37-year-old with dual Finnish and German citizenship, retreated into a safe room, and the police had to cut their way in. He was eventually arrested with a firearm close by that the police said appeared to be a shortened shotgun.

"It was definitely not as simple as knocking at the front door," said Grant Wormald, a detective inspector.

The police said they had seized 6 million New Zealand dollars, or $4.8 million, in luxury vehicles, including a Rolls-Royce Phantom Drophead Coupe and a pink 1959 Cadillac. They also seized art and electronic equipment and froze 11 million dollars in cash in various accounts.

Mr. Dotcom and three others arrested in New Zealand appeared in court Friday afternoon and were denied bail. Extradition proceedings will continue Monday.

The police said the other three arrested in New Zealand were Finn Batato, 38, a German citizen and resident; Mathias Ortmann, 40, a German citizen who is a resident of Hong Kong; and Bram van der Kolk, 29, a Dutch citizen who is a resident of New Zealand.

The police said they were still searching Dotcom Mansion on Friday evening.

Ira P. Rothken, a lawyer for Megaupload, said by telephone Thursday that "Megaupload believes the government is wrong on the facts, wrong on the law."

The arrests were greeted almost immediately with digital Molotov cocktails. The hacker collective that calls itself Anonymous attacked the Web sites of the U.S. Justice Department and several major entertainment companies and trade groups in retaliation for the seizure of Megaupload. …