Four in court over copyright bust

Four men made a brief appearance in an Auckland court today after police raided 10 addresses in Auckland linked to a US investigation into international copyright infringement and money laundering.

Kim Dotcom, Bram van der Kolk, Finn Batato and Mathias Ortman appeared in the dock at North Shore District Court.

Their lawyers, Paul Davison QC and Guyon Foley, said their clients would seek bail. That was opposed by lawyers representing US authorities.

Judge David McNaughton remanded the men in custody until Monday morning for a bail application.

The arrests today, carried out by the Organised & Financial Crime Agency New Zealand (OFCANZ) and New Zealand Police, follow a US request to arrest individuals for the purpose of extradition.

The FBI is investigating a group of people it describes as the `Mega Conspiracy' who allegedly operate Megaupload.com, an internet website that offers file hosting and distribution services.

This site has been accused by the US Department of Justice of reproducing and distributing infringing copies of all types of copyrighted works, including movies, TV programmes, music, software and books.

The department and the FBI said seven individuals and two corporations had been charged in the US with running an international organised criminal enterprise allegedly responsible for massive worldwide online piracy through Megaupload.com and related sites.

They allege it generated more than US$175 million in criminal proceeds and caused an estimated harm to copyright holders believed to be more than US$500m.

The action is among the largest criminal copyright cases ever brought by the US and directly targets the misuse of a public content storage and distribution site to commit and facilitate intellectual property crime.

Megaupload Limited was founded by Kim Dotcom, aka Kim Schmitz aka Kim Tim Jim Vestor, 37, a resident of Hong Kong and New Zealand. He was the director and sole shareholder of Vestor Limited, which had been used to hold his ownership interests in the Mega-affiliated sites, US officials said.

In addition, the following alleged members of the Mega conspiracy were charged in the indictment:

* Finn Batato, 38, a citizen and resident of Germany, who is the chief marketing officer

* Julius Bencko, 35, a citizen and resident of Slovakia, who is the graphic designer

* Sven Echternach, 39, a citizen and resident of Germany, who is the head of business development

* Mathias Ortmann, 40, a citizen of Germany and resident of Germany and Hong Kong, who is the chief technical officer, co-founder and director

* Andrus Nomm, 32, a citizen of Estonia and resident of both Turkey and Estonia, who is a software programmer and head of the development software division

* Bram van der Kolk, aka Bramos, 29, a Dutch citizen and resident of the Netherlands and New Zealand, who oversees programming and the underlying network structure for the Mega conspiracy websites.

Dotcom, Batato, Ortmann and van der Kolk were arrested today and are due to appear before North Shore District Court. Bencko, Echternach and Nomm remain at large.

Detective Inspector Grant Wormald of OFCANZ said at a press conference in Auckland this afternoon that 76 officers were involved in this morning's raids working with four FBI officers and backed by the Armed Offenders Squad.

Three were arrested in Coatesville, where Dotcom lives in the mansion built by the founders of the Chrisco hamper empire, and one in Orakei.

Mr Wormald said there were 15 people at the Coatsville address including family members and employees.

"It is fair to say there were a range of security measures. It wasn't just a case of knocking on the door.''

He said a security guard who worked at the address was also spoken to by police.

Assets seized included luxury cars with an estimated total value of up to NZ$6m. These include a Rolls Royce Phantom Drophead Coupe valued at more than NZ$500,000.

More than NZ$10m has also been seized from NZ financial institutions. These have been secured by New Zealand's Official Assignee pending the outcome of legal proceedings.

A neighbour of Dotcom's Coatesville home said she heard a helicopter circling the property about 6.30am.

"I thought it was his private helicopter, which is parked up behind the trees, and I thought he was going out for breakfast, as he sometimes does.

"I thought `this is going on a bit long' and it was a bit annoying at that time of the morning and so I got up and realised it was a police helicopter. It was there for about an hour and then my friend texted me that a lot of cops had arrived.''

She had never met him but sometimes saw him driving in his car.

"And everything's in black, they all dress in black. It's very surreal.''

Mr Wormald said the raids were the result of a year-long operation co-ordinated with US authorities. Police believed there was further money stashed away in "financial institutions'' but would not clarify what those might be, except to say some cash could be secured in government bonds.

The group will now be the subject of an extradition hearing as authorities attempt to fly them to the US to face the charges there.

"We were happy to provide this assistance. Staff from OFCANZ and New Zealand Police have worked with the US authorities over recent months to effect today's successful operation,'' Mr Wormald said.

"All the accused have been indicted in the United States. We will continue to work with the US authorities to assist with the extradition proceedings.''

The individuals and two corporations - Megaupload Limited and Vestor Limited - were indicted by a grand jury in the Eastern District of Virginia on January 5 and 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.

The 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.

US officials said law enforcment agencies executed more than 20 search warrants there and in eight other countries.

They seized about $50 million in assets and targeted sites where Megaupload has servers in the US, Netherlands and Canada.

In addition, the US District Court in Alexandria, Virginia, ordered the seizure of 18 domain names associated with the alleged Mega Conspiracy.

According to the indictment, for more than five years the conspiracy has operated websites that unlawfully reproduce and distribute infringing copies of copyrighted works, including movies - often before their theatrical release - music, television programmes, electronic books, and business and entertainment software on a massive scale.

The conspirators' content hosting site, Megaupload.com, is advertised as having more than one billion visits to the site, more than 150 million registered users, 50 million daily visitors and accounting for four percent of the total traffic on the internet.

The indictment states that the conspirators conducted their illegal operation using a business model expressly designed to promote uploading of the most popular copyrighted works for many millions of users to download.

The indictment alleges that the site was structured to discourage the vast majority of its users from using Megaupload for long-term or personal storage by automatically deleting content that was not regularly downloaded.

The conspirators further allegedly offered a rewards program that would provide users with financial incentives to upload popular content and drive web traffic to the site, often through user-generated websites known as linking sites. The conspirators allegedly paid users whom they specifically knew uploaded infringing content and publicised their links to users throughout the world.

As alleged in the indictment, the conspirators failed to terminate accounts of users with known copyright infringement, selectively complied with their obligations to remove copyrighted materials from their servers and deliberately misrepresented to copyright holders that they had removed infringing content. For example, when notified by a rights holder that a file contained infringing content, the indictment alleges that the conspirators would disable only a single link to the file, deliberately and deceptively leaving the infringing content in place to make it seamlessly available to millions of users to access through any one of the many duplicate links available for that file.

The indictment charges the defendants with conspiring to launder money by paying users through the sites' uploader reward program and paying companies to host the infringing content.

As Judge Fitzgerald addressed media applications for cameras in court, Dotcom interrupted him.

"We don't mind if people want to photograph us over this event because we have nothing to hide."