Bloomberg News

Megaupload Founder Denied Bail on Fleeing New Zealand Risk

January 25, 2012

(Updates with bank accounts in fifth paragraph.)

Jan. 25 (Bloomberg) -- Megaupload.com founder Kim Dotcom, accused of the biggest copyright infringement conspiracy in U.S. history, will remain in a New Zealand jail after a judge refused his bail request on concerns he would escape the country.

The risk of Dotcom fleeing New Zealand to a jurisdiction such as his home country of Germany, which has no extradition treaty with the U.S., was too great to release him, North Shore District Judge David McNaughton wrote in a 20-page ruling released by e-mail today.

Dotcom, 38, is sought in the U.S. where he was indicted on charges his file-sharing website was part of a $175 million copyright infringement conspiracy with pirated film and music files being exchanged. He was arrested at his leased New Zealand mansion on Jan. 20 and the U.S. has 45 days from the arrest date to file a formal extradition request.

“Flight risk remains a real and significant possibility,” McNaughton wrote. “I am sure that he has the financial resources to obtain forged identity or travel documents and to arrange transport out of the country by covert means should he choose to do so.”

Dotcom, who legally changed his family name from Schmitz, had access to 23 separate bank accounts in Hong Kong that held more than NZ$26 million ($21 million), according to the ruling. The FBI said his earnings for the 2010 calendar year were $42 million and it said he had NZ$10 million in New Zealand government bonds.

From Germany to Thailand

Prosecutors said Dotcom fled to Thailand from Germany following an investigation a decade ago before being arrested and returned to his homeland, according to the ruling. Dotcom was convicted of computer hacking in 1998, insider trading in 2003 and for failing to disclose some share purchases last year, McNaughton wrote. He holds a “number” of passports, the judge said.

Dotcom “emphatically” denied any criminal misconduct, in a statement to the court, according to the ruling.

“He denies the existence of the so-called Mega Conspiracy,” McNaughton wrote.

Megaupload was a file storage facility, allowing users to upload their own digital files and providing a link that let other users access those files, Dotcom said in the statement.

Agreements

The file-sharing website had agreements with major rights holders including the Recording Industry Association of America, the Motion Picture Association of America, Disney, Warner Brothers and others and removed any copyrighted items within 24 hours of being notified, according to the U.S. Digital Millenium Copyright Act, the judge cited Dotcom as saying.

“This is a novel situation,” Rick Shera, a partner at Lowndes Jordan in Auckland who specializes in information technology, said in a phone interview yesterday. “The dividing line between a site which is providing these sorts of services legitimately and one which is providing them illegally is a fine one, and no one quite knows where the line is.”

Dotcom will appeal the judge’s ruling, his lawyer, Paul Davison, told reporters outside court, according to the stuff.co.nz website. Davison couldn’t be reached for comment and his office phone line was constantly busy.

Safe Room

When police arrived at Dotcom’s house on Jan. 20, he activated electronic locks and sought refuge in a safe room, New Zealand police said in a statement. Police neutralized locks and cut their way into the safe room, where Dotcom was sitting cross-legged on the floor near a safe that contained a loaded shotgun.

Dotcom’s unlawful possession of the gun “suggests a level of criminality which to my mind could easily extend to exploiting criminal connections to obtain false travel documents and leave the country undetected,” McNaughton wrote.

In the raid, police said they seized 18 luxury vehicles, including a Rolls Royce Phantom Drophead Coupe and a 1959 pink Cadillac. The vehicles are valued at NZ$6 million. Police said as much as NZ$11 million in cash was restrained in various accounts. The U.S. received restraining orders for assets valued at $175 million, including some assets in New Zealand, the judge said.

U.S. Servers

The U.S. indicted Dotcom because some of Megaupload’s servers were based in that country. Other servers were based in Canada and the Netherlands, according to the ruling.

Dotcom’s participation in a 2006 gumball rally event was typical of his conduct, according to McNaughton’s ruling. Dotcom was driving at speeds of 250 kilometers (155 miles) per hour and refused to pull over to a police check point when signaled, the judge said. McNaughton said that incident didn’t factor in his decision “whatsoever”.

Megaupload was advertised as having more than 1 billion visitors, more than 150 million users, 50 million daily visitors, and accounted for 4 percent of Internet traffic, U.S. prosecutors said. New Zealand prosecutors must show Dotcom is accused of an offence that would be punishable by at least 12 months in jail in both the U.S. and New Zealand, according to the 1999 Extradition Act.

“It is submitted that this is the largest prosecution to date for infringement of copyright in the United States,” McNaughton said in the ruling. “The offending is described as unprecedented and most serious.”

Dotcom and four others were arrested Jan. 20 in New Zealand on U.S. charges of criminal copyright infringement, conspiracy to commit racketeering and money laundering. A fifth person was arrested in the Netherlands, while a sixth man fled from the Philippines to Germany, according to the ruling.

The racketeering and money laundering charges each carry maximum penalties of 20 years imprisonment and U.S. prosecutors will press for the maximum penalty if the men are convicted, McNaughton wrote.

The case is Kim Dotcom v. United States of America. DCNSD [25 January 2012]. District Court at North Shore (Albany).

--Editors: Joe Schneider, Iain Wilson

To contact the reporters on this story: Chris Bourke in Wellington at cbourke4@bloomberg.net; Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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