Newsmaker: Megaupload a story of Dotcom boom and bust

The entrance of the Dotcom Mansion, home of accused Kim Dotcom, who founded the Megaupload.com site and ran it from the $30 million mansion, is seen in Coatesville January 21, 2012. The U.S. government shut down the Megaupload.com content sharing website, charging its founders and several employees with massive copyright infringement, the latest skirmish in a high-profile battle against piracy of movies and music. New Zealand police on Friday raided a mansion in Auckland and arrested Kim Dotcom, also known as Kim Schmitz, 37, a German national with New Zealand residency.

(Reuters) - Among the roll-call of hip-hop artists and other celebrities plugging Megaupload.com's digital storage services in an online promotional video, a cameo from the website's founder would have gone unnoticed by many.

As the voiceover boasts of the site's billion users and four percent share of all Internet traffic, a colossal figure clad in black appears in a music studio.

"Bit by bit, it's a hit, it's a hit!" founder Kim Dotcom booms in a slight accent that hints at his German roots.

The hits may have just run out for Dotcom, also known as Kim Schmitz and Kim Tim Jim Investor, who spent his 38th birthday on Saturday in a New Zealand jail after 70 police raided his country estate and cut him out of a safe room he had barricaded himself in.

The Federal Bureau of Investigation, which requested the raid, says Dotcom masterminded a scheme that made more than $175 million in a few short years by copying and distributing music, movies and other copyrighted content without authorization.

Megaupload's U.S. lawyer said the company merely offered online storage, would "vigorously defend itself" and was trying to recover its servers and get back online.

The arrest marks the latest twist in the checkered story of Dotcom, a former hacker who got his first computer at nine before going on to build an Internet fortune and friendships with music stars including Alicia Keys, Will.i.am and P.Diddy who appeared on the Megaupload.com promo video.

EARLY STARTER

Born in the German city of Kiel, Dotcom -- who was then known as Schmitz -- grew up in northern Germany.

As a child, he made copies of computer games to sell to his friends, and in the early days of the Internet, began hacking into computers via telephones, according to reputed German daily Die Welt.

Schmitz has made no secret of his controversial past as a cyber-raider, hacking into computer networks at NASA, the Pentagon and at least one major bank.

As the hacker pioneer generation came of age, so did Schmitz. After being convicted of computer hacking in 1998, he made a fortune providing computer security consulting and venture capital investment via the firm Kimvestor.

According to German magazine Der Spiegel, Schmitz once boasted he would become one of the richest men in the world. How was he so sure? "I'm smarter than Bill Gates," he said.

Schmitz, who also called himself Kimble after the wrongly convicted doctor-on-the-run in the film "The Fugitive," became well known for his lavish lifestyle as much as his computer skills.

He briefly became a fixture in Germany's nouveau riche party scene and made his own film, shot with a hand-held camera, Kimble Goes Monaco. The hulking Schmitz -- reportedly two meters tall and weighing more than 130 kg -- was often shown in Germany's tabloid press with fast cars and a model on his arm.

Schmitz's website at one point featured photographs of him racing cars, shooting an assault rifle and flying around the world in his private jet on lavish vacations.

"I have a different attitude towards money than those who rather hoard it," he said during an appearance on the Harald Schmidt Show, a popular late-night talk show in Germany. "I would rather spend it and have a lot of fun."

A documentary about the outlaw Gumball 3000 road race of 2001 by German TV station RTL filmed Schmitz driving the Russian leg of the rally in excess of 240 kph (150 mph) in a 480-horsepower Mercedes sedan, and then laughing when an opponent is pulled over by police in Finland. "Our competition is out of the way!" he says in jubilation.

Schmitz liked promoting himself through stunts such as offering up to $10 million for information leading to the arrest of Osama bin Laden in the wake of terror attacks against the United States.

THE NAME'S DOTCOM. KIM DOTCOM

But in 2002, he was convicted in what was then the largest insider-trading case in German history.

Prosecutors said Schmitz bought shares in an online business and drove up the share price by announcing plans to invest millions to rescue the company from insolvency. After selling his shares for a profit, he fled to Thailand, was arrested and deported.

A Munich court sentenced the then 28-year-old to 20 months probation and a 100,000-euro fine.

After his conviction, Schmitz disappeared from public view, reappearing a couple of years ago in New Zealand, having legally changed his name to Dotcom.

He and his family moved into a multimillion dollar mansion outside Auckland and were granted residency after promising to invest at least NZ$10 million ($8 million) in New Zealand.

The leased 20-hectare property, set in rolling hills northwest of Auckland, is one of the largest and most expensive in the country, featuring manicured lawns, fountains, pools, palm-lined paths and extensive security.

In an interview with the New Zealand Herald Newspaper last year, Dotcom said residency would allow him, his wife, Mona, and their three children to live in a country that would become a "rare paradise on Earth."

"I might be one of the most flamboyant characters New Zealand has ever seen but my intentions are good and I would like to see New Zealand flourish to its fullest potential," he said.

Dotcom reportedly paid $500,000 for a massive New Year's Eve fireworks display over Auckland which he and Mona watched from their private helicopter.

The FBI estimates that Dotcom personally made around $115,000 a day during 2010 from his empire. The list of property to be forfeited, including almost 20 luxury cars, one of them a pink Cadillac, hints at a lavish lifestyle which may be about to be put on hold.

Dotcom and three fellow accused will appear in a New Zealand court on Monday and face extradition to the United States. ($1 = 1.2433 New Zealand dollars)

(Reporting by Lincoln Feast in SYDNEY and Sarah Marsh in FRANKFURT; Additional reporting by Peter Maushagen in FRANKFURT, Mantik Kusjanto in WELLINGTON and Brian Rohan in BERLIN; Editing by Nick Macfie)