U.S. prosecutors shut down Megaupload, arrest four in New Zealand

[News_Editor]

U.S. prosecutors shut down Megaupload, arrest four in New Zealand

2012-01-20 05:56:13 GMT+7 (ICT)

WELLINGTON, NEW ZEALAND (BNO NEWS) -- One of the world's largest file-sharing websites, Megaupload.com, was shut down by a U.S. court on Thursday after the site's leaders were charged with widespread online copyright infringement.

An indictment filed in a U.S. District Court in Virginia charges seven men and two corporations, Megaupload Limited and Vestor Limited, with running an international organized criminal enterprise which was allegedly responsible for massive worldwide online piracy of numerous types of copyrighted works, resulting in more than $500 million in losses to copyright owners.

Four of those charged, including 37-year-old founder Kim Dotcom, were arrested in the Auckland area of New Zealand on Thursday. The three others, identified as 35-year-old graphic designer Julius Bencko, 39-year-old head of business development Sven Echternach, and 32-year-old software programmer Andrus Nomm, remain at large.

In addition to the arrests, law enforcement also executed more than 20 search warrants in the United States and eight other countries, including New Zealand, and seized approximately $50 million in assets. The U.S. District Court in Virginia also ordered the seizure of 18 domain names associated with Megaupload.

"The FBI contacted New Zealand Police in early 2011 with a request to assist with their investigation into the Mega Conspiracy," said Detective Inspector Grant Wormald of the Organized & Financial Crime Agency New Zealand (OFCANZ). "We were happy to provide this assistance. Staff from OFCANZ and New Zealand Police have worked with the U.S. authorities over recent months to effect today's successful operation."

Since September 2005, Megaupload has provided a file-sharing service which allowed its users to upload and download files. The website, which hosted both legal and illegal content, was listed among the 100 most visited websites in the world, according to Alexa.com.

According to the indictment, Megaupload's income came primarily from premium subscriptions and online advertising. "Premium subscriptions for Megaupload.com have been available for online purchase for as little as a few dollars per day or as much as approximately $260 for a lifetime," the document said. "Premium users of the site, a small percentage of the overall user base, are able to download and upload files with few, if any, limitations."

U.S. prosecutors estimate Megaupload has collected a total of more than $150 million from its premium users since its launch in 2005. Online advertising on Megaupload.com and its associated websites resulted in at least $25 million more in income, according to the court documents.

Most of the revenue went to the seven defendants but millions of dollars were also spent to develop and promote Megaupload as well as complementary websites such as Megavideo.com, Megaclick.com and Megaporn.com. Millions were also paid out through Megaupload's "Uploader Rewards" program, which rewarded premium subscribers for uploading popular downloads.

"In contrast to legitimate Internet distributors of copyrighted content, Megaupload.com does not make any significant payments to the copyright owners of the many thousands of works that are willfully reproduced and distributed on the Mega Sites each and every day," prosecutors claimed.

Megaupload advertised itself as a private data storage provider, but prosecutors reject this claim as its users have no significant capabilities to store private content long-term. If there were no downloads, content uploaded by unregistered users would be deleted within 21 days while content from registered free users would be deleted every 90 days. Content from premium users was not regularly deleted.

U.S. prosecutors said Megaupload did not allow users to search for files on its website to conceal the scope of the infringement, and instead relied on third party linking sites to direct visitors to the files. "Though the public-facing Megaupload.com website does not allow searches, it does list its 'Top 100 files', which includes motion picture trailers and software trials that are freely available on the Internet," according to the criminal complaint. "The Top 100 list, however, does not actually portray the most popular downloads on Megaupload.com, which makes the website appear more legitimate and hides the popular copyright-infringing content that drives its revenue."

The indictment alleges that Megaupload also failed to comply with notice and takedown provisions of the Digital Millennium Copyright Act (DMCA), which provides Internet providers a safe harbor from civil copyright infringement suits in the United States if they meet certain criteria.

"The members of Mega Conspiracy do not meet these criteria because they are willfully infringing copyrights themselves on these systems; have actual knowledge that the materials on their systems are infringing (or alternatively know facts or circumstances that would make infringing material apparent); receive a financial benefit directly attributable to copyright-infringing activity where the provider can control that activity; and have not removed, or disabled access to, known copyright infringing material from servers they control," the documents allege.

For example, U.S. prosecutors claim that Megaupload negotiated the use of an "Abuse Tool" with major U.S. copyright holders to purportedly remove copyright-infringing material from its servers. The Abuse Tool allowed copyright holders to enter specific URL links to copyright infringing content of which they were aware, and were told that Megaupload would then remove, or disable access to, the material.

But prosecutors say the tool did not work as the copyright owners were led to believe. "When a file is being uploaded to Megaupload.com, the Conspiracy's automated system calculates a unique identifier for that file (called a 'MD5 hash') that is generated using a mathematical algorithm," according to the criminal complaint. "If, after the MD5 hash calculation, the system determines that the uploading file already exists on a server controlled by the Mega Conspiracy, Megaupload does not reproduce a second copy of the file on that server."

It adds: "Instead, the system provides a new and unique URL link to the new user that is pointed to the original file already present on the server. If there is more than one URL link to a file, then any attempt by the copyright holder to terminate access to the file using the Abuse Tool or other DMCA takedown request will fail because the additional access links will continue to be available."

In addition to copyrighted files, content on Megaupload servers also included child pornography and terrorism propaganda videos. Prosecutors said Megaupload was able to automatically delete known child pornography by calculating their MD5 hash values, but failed to do the same for copyright infringing content.

The seven defendants have been charged with engaging in a racketeering conspiracy, conspiring to commit copyright infringement, conspiring to commit money laundering and two substantive counts of criminal copyright infringement. They individuals each face a maximum penalty of 20 years in prison on the charge of conspiracy to commit racketeering, five years in prison on the charge of conspiracy to commit copyright infringement, 20 years in prison on the charge of conspiracy to commit money laundering and five years in prison on each of the substantive charges of criminal copyright infringement.

-- © BNO News All rights reserved 2012-01-20

[TheWalkingMan]

Also read elsewhere that the operator of now defunct tvshack (I think that was the name) has been extradited from the UK to the US and faces 5 years in the jug. The US government seems to be on something of a rampage with this stuff.

[KKK]

A completly futile attempt at stamping out piracy. Close this one and another opens....The only way of beating this is for the copyright holders to provide the same service as the pirates at a reasonable fee. hard to find legitimate copies of anything in Thailand other than the top rated movies. and a lot of those have been heavily censored. Try and buy them from Amazon and you'll get 100% import duty on arrrival in Thailand making the Thai government the biggest pirate around.....

[Steely Dan]

You can understand why they are stamping down on piracy, the internet has given people the opportunity to steal software worth hundreds of dollars a go from the comfort of their own armchairs. Actually to be more accurate the customers of the website are receiving stolen goods. I would bet that 99% of people using such sites would not act the same way if they had to physically take the product in question and take it from an actual shop without paying.

The internet provides separation and anonymity which makes it easy for people to act in a way they otherwise wouldn't.

[siampolee]

Justify the crazy sums of money paid to the media stars in relation to the income earned by the down-loaders. The media industry is as corrupt and as big a bunch of crooks as the bankers.

[TAWP]

Fascism and corporatism, hand in hand.

Btw:

Because of Edisons patents for the motion pictures it was close to financially impossible to create motion pictures

in the North american east coast. The movie studios therefor relocated to California, and founded what we today call

Hollywood. The reason was mostly because there was no patent.

There was also no copyright to speak of, so the studios could copy old stories and make movies out of them - like

Fantasia, one of Disneys biggest hits ever.

So, the whole basis of this industry, that today is screaming about losing control over immaterial rights, is that they

circumvented immaterial rights. They copied (or put in their terminology: "stole") other peoples creative works,

without paying for it. They did it in order to make a huge profit.

https://static.thepiratebay.org/legal/sopa.txt

[MrMuddle]

Typical USA bully tactics, it's time other countries stood up to them and refused to extradite people. As a reward to New Zealand, for selling out one of their citizens to corporate America, I won't be buying anything they sell.

[koheesti]

The movie and music industries love to say they have lost several billion dollars because of piracy but the truth is they probably haven't lost 0.01% of that amount. I've downloaded music that I had no intention of going to the store to buy and I've downloaded movies I had no intention of going to the cinema to see or was unable to see (Koh Samui has a 3 screens I believe). I've downloaded old movies when I had no intention of buying the DVD. Some movies and music I have already paid for at some time in my life. If I paid for the album, cassette and/or CD I think I've already paid to listen to it. These industries unrealistically expect to get paid each time someone listens to or watches their product. In some countries if your local bar is playing music and not paying for the license, they are breaking the law. Greedy bastards. http://www.restaurant.org/pdfs/legal/musiclicensing.pdf

[Steely Dan]

I accept your points relating to the music industry, however I believe software is a different issue, whilst a CD may cost $10 for music something like microsoft office costs loads more, but then again you do get open source software so perhaps that industry too could develop in the same manner.

[siampolee]

Agree with Steely Dan regarding the software issue, personally I avoid windows products like the plague, expensive imperfect and always malfunctioning. Along with the fact that such products want to control my P.C.

Sorry Gatesy, it's my machine not yours or Microsoft's property

I am a lover of , ''freeware open source material.'' I find that I am getting the product, tailored to what I want that I can control on my machine.

Rather poetic that the post raid hacking attacks on assorted U.S. government sites seem to have caused some problems that the Microsoft security systems so beloved by the government couldn't cope with.

Might just be that Megaupload raid and associated actions could well cause the U.S government and its cyber terrorism policies a big problem.

Is the defense system safe, is the system that controls nuclear weapons safe ?

If viruses can be planted in programmes connected to the refining of nuclear material in Iran is America or any other country and the populations of those aforementioned areas for that matter safe ?

Clowns In Action (C.I.A.) and the Fumbling Bloody Idiots (F.B.I.) along with their assorted partners in crime may well have opened a can of worms.

[koheesti]

I accept your points relating to the music industry, however I believe software is a different issue, whilst a CD may cost $10 for music something like microsoft office costs loads more, but then again you do get open source software so perhaps that industry too could develop in the same manner.

I bought a pirate software CD in Bangkok once. It worked ok after the trojans and other nasty things were cleaned out. It cured my interest in buying pirate software though and haven't bought any since.

[ludditeman]

The amusing thing is that Megaupload isn't really a pirate site.

I am a pirate, I download lots, hardly anything from Megaupload, way too slow, way too size restricted.

Many other places to download stuff from, wonder why they went after this site?

Edited January 21, 2012 by ludditeman

[warfie]

I always love these estimates of the loss to the copyright owner.... if I could not get it free, or very very cheap, I certainly would not pay the exorbitant prices they want, I would just do without. Therefore the copyright owner has lost nothing...

I am sure I am not the only one with this attitude.

[warfie]

Agree with Steely Dan regarding the software issue, personally I avoid windows products like the plague, expensive imperfect and always malfunctioning. Along with the fact that such products want to control my P.C.

Sorry Gatesy, it's my machine not yours or Microsoft's property

I am a lover of , ''freeware open source material.'' I find that I am getting the product, tailored to what I want that I can control on my machine.

Rather poetic that the post raid hacking attacks on assorted U.S. government sites seem to have caused some problems that the Microsoft security systems so beloved by the government couldn't cope with.

Might just be that Megaupload raid and associated actions could well cause the U.S government and its cyber terrorism policies a big problem.

Is the defense system safe, is the system that controls nuclear weapons safe ?

If viruses can be planted in programmes connected to the refining of nuclear material in Iran is America or any other country and the populations of those aforementioned areas for that matter safe ?

Clowns In Action (C.I.A.) and the Fumbling Bloody Idiots (F.B.I.) along with their assorted partners in crime may well have opened a can of worms.

Agreed... no need to pirate Microshit products, just use Linux and other FOSS (Free Open Source Software) alternatives.

[koheesti]

BTW - why is it OK for bars or restaurants to put up posters or prints of artwork on their walls and not get in trouble over copyright? Are artists just not as special as musicians or actors?

[TAWP]

BTW - why is it OK for bars or restaurants to put up posters or prints of artwork on their walls and not get in trouble over copyright? Are artists just not as special as musicians or actors?

Because there is no big organization of comparable size, lead by a scum-bug such as Chris Dodd, lobbying for the artists - as there are lobbying for the gigant media-corporations [as oppose to actors, writers, photographers etc that is merely protected by proxy and then raped by contracts instead].

As long as Hollywood accounting exists I don't feel any guilt over downloading all new movies that comes out and only buying those I really-really like and want to support the makers behind.

[Credo]

BTW - why is it OK for bars or restaurants to put up posters or prints of artwork on their walls and not get in trouble over copyright? Are artists just not as special as musicians or actors?

They have the same protection. Some years back there were some end users who were arrested for downloading music and movies, but this probably wasn't going to be very feasible. It was a little like trying to arrest every person who is speeding on every road. Posters are usually bought and if someone, somewhere starts mass producing artwork, the artists can go after them as well. The group that was busted was violating a law, I assume the charges were filed by some group. I don't know if it was political or not. Perhaps the companies doing this should set up operations in a different country. Iran might be a better place or maybe North Korea. Then again, maybe not.

[koheesti]

BTW - why is it OK for bars or restaurants to put up posters or prints of artwork on their walls and not get in trouble over copyright? Are artists just not as special as musicians or actors?

They have the same protection. Some years back there were some end users who were arrested for downloading music and movies, but this probably wasn't going to be very feasible. It was a little like trying to arrest every person who is speeding on every road. Posters are usually bought and if someone, somewhere starts mass producing artwork, the artists can go after them as well. The group that was busted was violating a law, I assume the charges were filed by some group. I don't know if it was political or not. Perhaps the companies doing this should set up operations in a different country. Iran might be a better place or maybe North Korea. Then again, maybe not.

In America and some other places, a bar/restaurant can't buy a CD and play it for customers to listen to. That is illegal. It seems to me then that they shouldn't be able to purchase artwork to put up for customers to enjoy either.

[GentlemanJim]

The amusing thing is that Megaupload isn't really a pirate site.

I am a pirate, I download lots, hardly anything from Megaupload, way too slow, way too size restricted.

Many other places to download stuff from, wonder why they went after this site?

And there is the 64 million dollar question! It turns out this is not quite as straight forward a situation as you think. Megaupload's only link to the US is that it leased some server space there (and not really that much), it is a Chinese company mainly (with a presence in NZ) but because there was some rented server space in the US, then the US took it upon themselves to act as they did. Interestingly it is only this type of company the US go after, there are infact some billionaire companies that are US based and US registered whose owners are so wealthy that the US government does not touch them!!!! Bittorrent is a US company and concept that has been used to download countless millions of copyright protected items i guess. Yet nothing happens! Why?

The current set fine for each copyright infringement is 150 000 US$. A single Mum in the US who downloaded 10 music tracks was fined 1.5 million dollars. Interestingly the law is also structured that if you are fined for copyright infringement you cannot claim bankruptcy and all assets will be seized.

Take a look at the video below for some very interesting info and leads on the megaupload situation. The first few minutes are incredibly irritating with the guys manner and voice but stick through it and be enlightened about the whole P2P issue.

http://www.youtube.com/watch?v=-tD1yaE0GfQ&feature=g-logo&context=G20cf668FOAAAAAAAAAA

[koheesti]

I just signed up for Netflix here in the US. All the on-demand streaming movies and TV shows I can stomach for about 240 baht per month. Not a bad deal. Not sure if it is available in other countries so you may have to continue to download stuff and be careful when you answer that knock at your the door.

Edited January 22, 2012 by koheesti

[maidu]

I think it's a matter of degrees. It's not a black & white situation. In other words, pure piracy is extreme, in that it deprives artists of a portion of the revenue due to them. On the other extreme, purchasing videos and music retail is overly expensive, mostly because of the greediness of established labels. A songwriter/musician usually gets 3% and publisher 3%, and most of the rest goes to executives and middle men. I believe those %'s are for wholesale, not for retail revenues of the songs. So, to deprive the songwriter of 3% royalties is unfair. If a band is not touring or playing in a well-paying venue, then chances are some of its members will probably have to try to make ends meet just with revenue from songwriting and CD sales.

Are songs generally poorer quality nowadays? I don't know (I don't listen to new stuff), but I wouldn't be surprised it that's so. Certainly many music groups are continuously churning out versions of older songs - perhaps that's indicative of how it's a tough biz - to try and make a few bucks as a songwriter nowadays.

If you haven't guessed by now, I'm (was) a songwriter. My mistake was not going to L.A. or NY and mixing in with the 'happening people.' Instead, I thought I could make it work by sending demo tapes to agencies from 'the sticks' (far away from any cities). That was 1980's. It didn't work. All my buddies said my songs sounded great, but getting enthusiastic feedback from friends and neighbors isn't going to pay the bills.

Edited January 24, 2012 by maidu

[TAWP]

maidu>> Imagine hearing that your songs are great. So great that they are willing to give you 10% of NET instead of the usual contract - just because they like it so much. You become extremely happy, finish off a full album without any payment upfront and submit it. 1 year later the year-end-result come in. It shows that the cd, selling in 1 million copies and claiming gold, unfortunately was a loss for the record company due to 'creative accounting', leaving you with $0 to live on.

This is what has happened to multiple writers for movies, including several highly successful writers on their own - but not being critical enough of their contracts. Heck, even the Tolkien family was scammed out of money this way over the LOTR movies...

[maidu]

maidu>> Imagine hearing that your songs are great. So great that they are willing to give you 10% of NET instead of the usual contract - just because they like it so much. You become extremely happy, finish off a full album without any payment upfront and submit it. 1 year later the year-end-result come in. It shows that the cd, selling in 1 million copies and claiming gold, unfortunately was a loss for the record company due to 'creative accounting', leaving you with $0 to live on.

This is what has happened to multiple writers for movies, including several highly successful writers on their own - but not being critical enough of their contracts. Heck, even the Tolkien family was scammed out of money this way over the LOTR movies...

I can believe that happens - mucho. There are also executives who slyly put their names on songwriting and/or publishing credits, and it's not found out (by the original) artist until a lot later. Though today, that might be somewhat of a moot point, because the more prevalent pirating becomes, the less revenue gets paid toward such things as royalties.

[GentlemanJim]

Interestingly (or not ) , I was talking to my son last night who runs a graphic design and web business, who has many clients who are hosted in servers that he has in the UK and also leased in the USA. He made a decision to pull the plug yesterday on behalf of his clients and called up the hosting company in Texas, telling them that he was temporarily shutting all sites down and with immediate effect transferring everything to a hosting company in the Netherlands. The guy in the US said to him that there has been 'an exodus' of people from all around the world pulling all of their web based business out of the US. The guy at the US hosting company commented that 100's of millions of dollars of business was being pulled out of the US since the Megauploads stuff was exposed. "What the Lord gives with one hand, he taketh away with another!"