Remember MegaUpload? Taken down last year by US law enforcement, the founder Kim Dotcom is planning to revive the site (under a new name, Mega.co.nz) on its one year anniversary. However what may seem like a technology story about copyright has transformed into a massive political scandal in New Zealand, especially on the spying and who knew what about it.
And just in time of Dotcom’s relaunch of Mega, here is what you need to know about the entire saga – just in case you have been living under a rock for the past year (or worried about the so-called Mayan prophecy).
Featured Image, Top Image: Kim Dotcom’s Twitter (@kimdotcom)
Who is Kim Dotcom?
Kim Dotcom, or Kim Schmitz, is a 38-year-old German-born Internet entrepreneur, known for his hacking past as a teenager, his height, the company MegaUpload, being (formerly) the number one player on Modern Warfare 3, and his lavish lifestyle. And yes, his last name is indeed “Dotcom”, he legally changed it in 2005.
His lifestyle has been noted across the technosphere for some years now; in fact, he made his own ‘documentary’ (as Ars Technica puts it) of his 2001 lavish trip to the Monaco Grand Prix, paying US$1 million for a 240-foot luxury yacht for a week, and throwing lavish parties that included Prince Ranier of Monaco as guests. We also know that he owns or used to own a Challenger jet, a helicopter, and 18 luxury cars – three with licence plates that feature such words as “HACKER”, “MAFIA” and “STONED”.
So, how did he make his money? MegaUpload only started in 2005, when he was living in Hong Kong. He previously had a security consulting company called Data Protect, and managed to get a security contract with German airline Lufthansa by showing off a security vulnerability (though, SecurityFocus says that he had an accomplice to break into Lufthansa’s network). In 2000, he sold an 80 percent stake into the company to a German conglomerate. Data Protect went bust in 2001.
Also in 2001, Dotcom purchased 375,000 euros in shares of a nearly-bankrupt LetsBuyIt.com; and announced he would invest another 50 million euros. That price surged up 220% to close at 77 cents. Dotcom, however, quickly sold those shares and made a profit of 1.5 million euros. He would be later charged with insider trading – though, some say it could have been ignorant about it, since Germany only criminalised the practice back in 1995 – and “fearing for his life”, left Germany for Thailand.
Once found to be living in Thailand, he was soon arrested and deported back to Germany to face charges of insider trading. However, he basically got a “slap on the wrist”, according to BusinessWeek. He received a 20-month suspended sentence after just five months in jail. He also received another two years of probation after pleading guilty to embezzlement charges over a “loan” to another company tied to him. After that, he promptly left Germany to Hong Kong.
The Birth of Megaupload
In 2003, Kim Dotcom invested US$250,000 into a company called Trendax, an “artificial intelligence-driven” hedge fund that promised returns up to 25 percent thanks to its “complex combination of sophisticated technical analysis, real-time content analysis of news feeds, multi-dimensional statistical analysis and advanced proprietary mathematical techniques”. However, the office’s address was a virtual office and the fax line was a shared one.
However, while it was registered as a business in Hong Kong, it could not accept investments or conduct trades as it was never registered with the US’ Securities and Exchange Commission, or the Hong Kong equivalent. He would later be fined 8000 Hong Kong dollars for not disclosing his shareholding levels.
Meanwhile, Dotcom also registered Data Protect Limited – at the same time he registered Trendax. It soon changed its name in 2005 to “Megaupload”, with its owner being “Vestor Limited” – also owned by him, and created by using his Finnish passport under the pseudonym “Kim Tim Jim Vestor”. However, Dotcom’s involvement with the company would not be known until 2007, and his role as founder was not revealed until 2011.
Megaupload would quickly become the file-sharing powerhouse, commanding at slightly more than two-thirds of the market. It boasted that it accounted for 4% of all internet traffic, and had 50 million daily visitors. It makes, reportedly, $175 million since 2005.
But, most people would remember Megaupload for being behind “The Mega Song” in 2011, showing artists such as will.i.am and Alicia Keys (and other celebrities like Kim Kardashian – wait, seriously?) endorsing the company. It was be quickly removed by YouTube because of a takedown request by Universal Music, before being reinstated.
The Arrest
On January 20 last year, Kim Dotcom and three other executives were arrested by New Zealand Police, acting on a request by a US Federal Prosecutor. The four were charged by the US for racketeering and money laundering; and the Justice Department called Megaupload an “international organised criminal enterprise allegedly responsible for massive worldwide online piracy”. In addition, the US seized its domain name; and Hong Kong Customs froze more than 300 million Hong Kong dollars in assets. New Zealand Police already seized NZ$10 million from bank accounts and NZ$6 million in assets.
All four deny the charges.
Police had arrested him at a time when Dotcom was planning his reportedly-extravagant birthday party. Footage released in August reveals what happened – four armed members of the elite Special Tactics team enter the house early in the morning via helicopter. While they eventually found Kim Dotcom in the house, after barricading himself inside the “red room” in his house, it took them 13 minutes to find him.
It later emerged that the Special Tactics team was called in because the FBI believed that he had a “Doomsday” device that would wipe out any evidence of internet piracy. However, police say that it never existed.
Dotcom remained behind bars, after two attempts of bail were refused after crown prosecutors said that he was a “flight risk” and while they frozen most assets, they are not entirely sure they have frozen all of them. However, Dotcom finally was granted bail in late February when Judge Nevin Dawson was satisfied that all assets was frozen.
Megaupload’s closure and their founder’s arrest led to drastic changes to many other file sharing services – many, like FileSonic (which is one of the top 10 file sharing sites online with a quarter of a billion pageviews per month), only allowed users to upload and download their files. Others closed their affiliate programs, deleted accounts and files, or even shut down the entire service.
“Investor Plus”
Kim Dotcom’s residency status in New Zealand became the subject of some controversy. He was granted residency status under its “Investor Plus” category after investing $10 million in government bonds for more than 3 years. The Immigration Department also said that they knew of his former criminal convictions, but waived the “good character requirements”, according to the New Zealand Herald, as the convictions were more than 16 years old, wanted to buy the most expensive home in the country that no one wanted, and would contribute to New Zealand through investment, consumption and philanthropy.
He has previously given $50,000 to the Christchurch mayoral fund following their earthquake, another $50,000 to a rugby player after an on-field injury left him in a wheelchair, and spent $600,000 to have a fireworks display in Auckland harbour.
Documents, however, showed that Dotcom set a deadline to approve his application by November 1, threatening officials that he would move to Australia or Canada if they didn’t. Documents also showed the deliberations of the processing his application, with one official writing that his investments “outweigh the negative aspects flowing from the applicant’s convictions.”
However, the department was looking to keep this hidden in order to “avoid further media speculation or attention” due to his desire to avoid such attention, but also due to the department predicting such bad press about the decision to grant him residency.
The Election Donation
The National-led coalition was rocked by a political scandal in late April when Dotcom alleged that John Banks, the Small Business Minister and also leader of the minor ACT Party, accepted a NZ$50,000 donation to his campaign to be mayor of Auckland back in 2010. He told TV3’s Campbell Live that he asked Dotcom to split the donations into two NZ$25,000 donations. Banks is also said to have received anonymous donations by Sky City Casino.
Under New Zealand law, it is illegal to classify donations over NZ$1,000 as anonymous if the candidate knows who the donor is – and Dotcom says that they both knew each other. Dotcom also told TV3 that he flew Banks to his mansion on his helicopter.
Banks, on the other hand, says while he knows Dotcom, he does not recall any conversation about donating money to his electoral campaign. On TVNZ’s Q+A programme, he said that he “signed my declaration for the mayoralty… in good faith in the knowledge as a Justice of the Peace as true and correct.”
“I have nothing to fear and nothing to hide and I welcome the inquiry and everything will come out in the wash,” he said.
In late July, the police has cleared Banks from any wrongdoing, despite the fact that police found that he personally solicited the donations, and in one case, received a physical cheque. However, according to Police Assistant Commissioner Malcolm Burgess, there was insufficient evidence that Banks knowingly sent in a false electoral return.
Based on illegality?
The extradition became official when the Crown Prosecution filed the official paperwork by the FBI in March. However, the case hit several legal setbacks soon after. A judge said that a court order should never have been used to seize Dotcom’s cars, cash and property. Justice Judith Potter said that it had “no legal effect” and was “null and void”. This came after the Police and the Government’s legal advisers admitted making a “procedural error” when filing documents. Once they admitted their mistake, they tried to get a retrospective order for the already seized assets.
Justice Potter gave a temporary order, but a week later gave Dotcom his Mercedes-Benz G55 AMG truck back, in addition to a further NZ$20,000 a month for living expenses since his money was seized by the Police. In April, he managed to get the court to allow him Internet access; while in May, the court no longer saw him as a flight risk and removed the electronic bail.
In June, the raid of his home in January was deemed illegal by the High Court. Chief High Court judge Helen Winkelmann said that they gave the authorities a too-wide range of items to seize, and did not adequately describe the allegations against Dotcom. In that case, it was also revealed that the FBI had made copies of some of the hard drives seized – despite the court order. Winkelmann ordered a judicial review of the raid, in order to determine what items are “relevant” for the case.
In late September, it was revealed that incorrect information by the New Zealand Police’s Organised and Financial Crime Agency (Ofcanz) saw the intelligence agency Government Communications Security Bureau (GCSB) illegally spy on Dotcom. Under New Zealand law, GCSB is not allowed to spy on New Zealand citizens or permanent residents – which was not the case for Dotcom, but Ofcanz failed to tell GCSB that information.
GCSB’s involvement came after Ofcanz asked the agency to obtain information that related to the “location, awareness on the part of the wanted person of law enforcement interest in them, or any information indicating risk factors in effecting any arrest”. According to The New Zealand Herald, spying began on December 16, 2011 and ended the day the raid was conducted – January 20.
It appeared that the government wanted to hide it, as the Deputy Prime Minister Bill English – acting as the Prime Minister as John Key was in the US with his son – signed a “ministerial certificate”, basically suppressing it. Key is said to have known a week before it was revealed to the nation, and the certificate was voided because it was an unlawful activity.
Key has apologised to Dotcom on the spying, but opposition parties have called on an inquiry. Dotcom has accepted the apology, but also supports the idea of a “full, transparent & independent inquiry into the entire Mega case.”
Since the revelations, the GCSB has been added to the judicial review of the raid and has been allowed access to information about it spying on him. This has also open up a way for Dotcom to seek damages from both the GCSB and the Police.
A FBI double-cross?
Just before the end of the year, a new aspect into the case emerged. Megaupload assisted the FBI back in 2010 as part of their criminal investigation into another streaming service called NinjaVideo, which was using their Megavideo service in order to deliver pirated material.
According to Ira Rothken, from Dotcom’s legal team and talking to Wired, the site responded as “good corporate citizens” by keeping it a secret and turned over information on the operators, including information on 39 pirated movies in that warrant.. That information assisted in the arrest and conviction of five administrators of NinjaVideo, including owner Hana Beshara.
Now, that list of 39 NinjaVideo files are now being used as evidence against Megaupload. According to prosecutors, they say that 36 of the 39 videos were left on their servers. Rothken, however, counters that it would have been accused of evidence-spoliation if it removed the movies.
In January, Dotcom’s legal defence team filed new court documents that challenge the warrants used to seize his documents. He said that the FBI “deliberately misled the court” with warrants that excluded “critical facts” that would have shown that the company’s efforts to assist them. They also claimed that an agent contacted Megaupload’s hosting provider Carpathia to secure the files, and not to alter or change the files. They also pointed to an email from Carpathia’s Phil Hedlund that detailed the warrant.
The FBI has denied the allegations, saying that it never instructed Megaupload to retain the files.
“Megaupload’s allegations are baseless, as even a cursory review of Megaupload’s pleading and the search warrant materials at issue disproves the allegation that the government misled the court as part of a conspiracy to entrap Megaupload,” they wrote in their filing. “Yet Megaupload does not cite a single communication between the government and Megaupload or a single instruction from any member of the government to Megaupload; there are none.”
Where to now?
Dotcom’s extradition trial has been scheduled to begin in March. However, Dotcom is launching his brand new Mega service. The company’s first hurdle was getting a domain name that would be out of reach from the United States – since they have seized several .com domain names in the past. His first attempt was to register the me.ga domain name. However, Gabon – who owns the .ga domain – rejected the registration after it worried it would be used to host copyright infringing files.
“Gabon cannot serve as a platform for committing acts aimed at violating copyrights, nor be used by unscrupulous people,” Gabon’s Communication Minister, Blaise Louembre, told the BBC.
Dotcom, however, said that it was another example of the US government’s “bad faith witch hunt” on Megaupload. Days later, he relaunched the site under mega.co.nz, with a placeholder on what the service will be. The new Mega service promises to be better, faster, stronger and safer; with Dotcom seeking people to help with hosting and invest into the service.
Mega is set to launch on January 20 – with the eyes of the world, especially the tech press, law enforcement and the United States Government, all watching.