* NZ Police arrest Megaupload founders in raids
* Arrests come as U.S. online piracy laws debate heats up
* Hackers attack sites of DOJ, music and film trade groups
* Estimated $500 million in economic harm
By Jeremy Pelofsky and Jim Finkle
Jan 20 (Reuters) - 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.
The Department of Justice announced the indictment and arrests of four company executives in New Zealand on Friday as debate over online piracy reaches fever pitch in Washington where lawmakers are trying to craft tougher legislation.
The movie and music industries want Congress to crack down on Internet piracy and content theft, but major Internet companies like Google and Facebook have complained that current drafts of the legislation would lead to censorship.
A Justice Department official said the timing of the arrests was not related to the battle in Congress.
New Zealand police on Friday raided a mansion in Auckland and arrested Megaupload founder Kim Dotcom, also known as Kim Schmitz, 37, a German national with New Zealand residency.
About 70 police, some armed, raided 10 properties and also arrested the website’s chief marketing officer, Finn Batato, 38, chief technical officer and co-founder Mathias Ortmann, 40, both also from Germany, and Dutch national Bram van der Kolk, 29, who is also a New Zealand resident.
New Zealand police seized millions of dollars worth of assets, which included luxury cars such as a Rolls Royce Phantom Drophead Coupe, from the group, dubbed the “Mega Conspiracy” by prosecutors. They also seized more than NZ$10 million ($8 million) from financial institutions.
“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 from the Organised & Financial Crime Agency New Zealand.
“All the accused have been indicted in the United States. We will continue to work with the U.S. authorities to assist with the extradition proceedings,” Wormald said in a statement.
The men appeared briefly in an Auckland court on Friday and were remanded in custody until Monday for a bail hearing.
“We have nothing to hide,” Kim Dotcom said from the dock after his lawyer opposed media cameras in the court, reported New Zealand media.
Vocal critics of the U.S. Stop Online Piracy Act, or SOPA, and Protect IP Act (PIPA), quickly showed their opposition to the shutdown of Megaupload.com, with hackers attacking the public websites of the Justice Department, the world’s largest music company Universal Music, and the two big trade groups that represent the music and film industries.
“The government takes down Megaupload? 15 minutes later Anonymous takes down government & record label sites,” a member of Anonymous said via Twitter.
Representatives with the Justice Department and Recording Industry Association of America declined comment on the attacks. Officials with Universal Music could not immediately be reached.
Motion Picture Association of America spokesman Howard Gantman said his group was working with law enforcement to identify the attackers.
The Mega Conspiracy group was accused of engaging in a scheme that took more than $500 million away from copyright holders and generated over $175 million in proceeds from subscriptions and advertising, according to the indictment unsealed on Thursday.
“In exchange for payment, the Mega Conspiracy provides fast reproduction and distribution of infringing copies of copyrighted works from its servers located around the world,” the indictment said.
U.S. Justice Department officials said that the estimate of $500 million in economic harm to copyright holders was on the low end and likely significantly more.
The allegations included copyright infringement as well as conspiracy to commit copyright infringement, conspiracy to commit money laundering and conspiracy to commit racketeering.
If convicted, the maximum penalties are 20 years for conspiracy to commit racketeering and to commit money laundering and five years for each count of copyright infringement and five years for conspiracy to commit copyright infringement.
The companies charged, Megaupload Ltd and Vestor Ltd, were both registered in Hong Kong and owned either in large part or solely by Dotcom. A lawyer who has previously worked with Megaupload was not immediately available for comment.
Megaupload has boasted of having more than 150 million registered users and 50 million daily visitors, according to the indictment. At one point, it was estimated to be the 13th most frequently visited website on the Internet.
Users could upload material to the company’s sites which then would create a link that could be distributed. The sites, which included video, music and pornography, did not provide search capabilities but rather relied on others to publish the links, the indictment said.
Users could purchase memberships to the site to obtain faster upload and download services, the primary source of revenue. Material that was not regularly downloaded was deleted and financial incentives were offered for popular content, according to the charges.
The web page with the link to the copyrighted material would include advertisements, another source of revenue.
If copyright holders complained about a specific link to the website, prosecutors said that Megaupload.com would remove that link but scores of others existed to the same material, according to prosecutors.
Other material found uploaded included child pornography and terrorism propaganda videos, according to the indictment. The U.S. government’s investigation began in March 2010.