7 Charged as F.B.I. Closes a Top File-Sharing Site

By BEN SISARIO - Associated Press

An undated screenshot of Megaupload.com, which allowed users to transfer large files. The U.S. shut the site on Thursday.

Published: January 19, 2012

In what the federal authorities on Thursday called one of the largest criminal copyright cases ever brought, the Justice Department and the Federal Bureau of Investigation seized the Web site Megaupload and charged seven people connected with it with running an international enterprise based on Internet piracy.

Coming just a day after civil protests in the United States over proposed antipiracy bills, the arrests were greeted almost immediately with digital Molotov cocktails. The hacker collective that calls itself Anonymous attacked the Web sites of the Justice Department and several major entertainment companies and trade groups in retaliation for Mega-upload’s seizure. The Justice Department’s site and several others remained inaccessible for much of Thursday afternoon.

Megaupload, one of the most popular so-called locker services on the Internet, allowed users to anonymously transfer large files like movies and music. Media companies have long accused it of abetting copyright infringement on a vast scale. In a grand jury indictment, Megaupload is accused of causing $500 million in damages to copyright owners and of making $175 million through selling ads and premium subscriptions.

Four of the seven people, including the site’s founder, Kim Dotcom (born Kim Schmitz), have been arrested in New Zealand, the authorities said; the three others remain at large. Each of the seven people — who the indictment said were members of a criminal group it called “Mega Conspiracy” — is charged with five counts of copyright infringement and conspiracy. The charges could result in more than 20 years in prison.

As part of the crackdown, more than 20 search warrants were executed in the United States and in eight other countries. About $50 million in assets were also seized, as well as a number of servers and 18 domain names that formed Megaupload’s network of file-sharing sites.

Ira P. Rothken, a lawyer for Megaupload, said in a phone interview on Thursday that “Megaupload believes the government is wrong on the facts, wrong on the law.”

The case against Megaupload comes at a charged time, a day after broad online protests against a pair of antipiracy bills in Congress, the Stop Online Piracy Act, or SOPA, in the House, and the Protect I.P. Act, or PIPA, in the Senate.

The bills would give federal authorities expanded powers to crack down on foreign sites suspected of piracy. But technology companies and civil liberties groups say that the powers are too broadly defined and could effectively result in censorship. On Wednesday, Google and Wikipedia joined dozens of sites in political theatrics by blacking out some content and explaining their arguments against the laws.

Anonymous, which has previously set its sights on PayPal, Sony and major media executives, was more blunt in its response. The group disabled the Justice Department’s site for a time, and it also claimed credit for shutting down sites for the Motion Picture Association of America and the Recording Industry Association of America, two of the most powerful media lobbies in Washington, as well as those of the Universal Music Group, the largest music label, and BMI, which represents music publishers.

“Let’s just say, for #SOPA supporters their #SOPAblackout is today,” Anonymous wrote in a Twitter post. In an e-mail, a spokesman for the group said it was responsible for the Web attacks.

The Megaupload case touches on many of the most controversial aspects of the antipiracy debate. Megaupload and similar sites, like Rapidshare and Mediafire, are often promoted as convenient ways to legitimately transfer large files; a recent promotional video had major stars like Will.i.am of the Black Eyed Peas singing Mega-upload’s praises. But they have become notorious inside media companies, which see the legitimate uses as a veil concealing extensive theft.

Mr. Dotcom, a portly 37-year-old with dual Finnish and German citizenship, has made himself a visible target. He splits his time between Hong Kong and New Zealand and casts himself in flamboyant YouTube videos. His role as one of the most prominent Web locker operators has earned him a half-joking nickname in Hollywood: Dr. Evil.

According to the indictment, he earned $42 million from Mega-upload’s operations in 2010.

The indictment against Mega-upload, which stems from a federal investigation that began two years ago, was handed down by a grand jury in Virginia two weeks ago but was not unsealed until Thursday.

It quotes extensively from correspondence among the defendants, who work for Megaupload and its related sites. The correspondence, the indictment says, shows that the operators knew the site contained unauthorized content.

The indictment cites an e-mail from last February, for example, in which three members of the group discussed an article about how to stop the government from seizing domain names.

The Megaupload case is unusual, said Orin S. Kerr, a law professor at George Washington University, in that federal prosecutors obtained the private e-mails of Megaupload’s operators in an effort to show they were operating in bad faith.

“The government hopes to use their private words against them,” Mr. Kerr said. “This should scare the owners and operators of similar sites.”

Nicole Perlroth contributed reporting.