The Rise and Fall of Kim Dotcom and Megaupload: 10 Burning Questions Answered

Kim Dotcom has offered the U.S. an extradition deal—but does he have a case? Andrew Carter explains.

What is Megaupload?

Founded in 2005, the Hong Kong–based Megaupload allowed users to upload and access any files that were on their hard drive or in cloud storage. This included photos, music, and videos. It is one of many “cyberlocker” websites, which are often foreign-based and offer pirated movies, shows, and music. Megaupload’s video service, MegaVideo, allowed anyone to watch more than an hour of video at a time. At its height, the site was ranked No. 13 of the most visited sites on the Internet. As a result, the website was incredibly lucrative. Last year, even the company’s graphic designer made $1 million. But for much of its history the website suffered from allegations of holding illegal files. When the U.S. government shut down the service in January 2012, it claimed that much of the $175 million that the site had earned since 2005 was due to copyright infringement.

Why did the U.S. government target Megaupload?

There are a ton of file-sharing services on the Web. What got Megaupload in trouble? For one thing, its sheer size. At its height, the site attracted 50 million daily visitors and represented 4 percent of all traffic on the Internet. It earned millions through ad revenue, and the MPAA estimated the website’s copyright infringement cost copyright holders $500 million. The site also faced allegations that it provided rewards and financial incentives to users who shared illegal music and videos, and that members of the company engaged in international money laundering.

Were other companies impacted by the crackdown?

Most file sharing is perfectly legal if it does not involve copyrighted content, but the government’s crackdown of Megaupload made clear that many other file-sharing websites asre vulnerable if users upload and share copyrighted content. Thus, many major sites quickly adjusted their business models. Within days of the January crackdown, Filesonic.com had dropped its sharing function and become purely a file-storage service. Filesonic changed its slogan from “the world’s best file-sharing site!” to “the unlimited storage company.” Many other websites followed suit. Even so, evidence suggests that closing Megaupload had no impact on copyright infringement and that file sharing has not slowed down—just gone elsewhere.

Who is Kim Dotcom?

Born Kim Schmitz in 1974, the German native is the founder of Megaupload and was one of four people arrested when the Justice Department shut down the company in January. His lawyers claim the company only offered online storage. As for Dotcom’s personal history, he copied computer games as a child and sold them to friends and then began hacking into computers, eventually breaking into websites for NASA and the Pentagon. He later started computer security consulting firm Kimvestor, which made him rich. He has had legal troubles before: a hacking conviction in 2008 and an insider-trading conviction in 2002. He legally changed his name to Kim Dotcom sometime after the 2002 conviction. He has a famously large frame (6-foot-6 and 285 pounds) and is known for his lavish lifestyle. The $18 million mansion he was renting in New Zealand at the time of his arrest had a garden labyrinth, giraffe sculptures, and $5 million worth of cars, which had license plates like “Hacker,” “Mafia,” and “God.” Dotcom had previously attempted to get nonresident permission to buy the home, but he did not pass the country’s “good character” test. The FBI estimates that during 2010, he was making $115,000 per day.

So was his arrest dramatic?

Dotcom was arrested in a mansion he was renting outside of Auckland, New Zealand. The FBI requested the raid, and it was carried out by 70 police officers backed by helicopters. All that manpower came in handy, because Dotcom had to be cut out of his panic room. Also inside the panic room were a variety of strange items including: a loaded shotgun, three passports under different names, 25 credit cards, a bulletproof watch, and a replica of the alien from Predator.

What’s Dotcom’s legal status?

After his arrest, Dotcom was held for a month before being released on bail. Since then, the courts have slowly eased many restrictions on him. Dotcom has moved back into his house, been granted access to some of his finances, and some of his travel restrictions have been removed. However, his extradition hearing was delayed after a court ruled that the warrants used to search his mansion were illegal and that the FBI’s copying of evidence and sending it to the United States was also illegal. All of that evidence may be inadmissible.

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Will the party be over soon and Dotcom be extradited?

The extradition hearing has been delayed from August until March 2013. But this week, Dotcom offered the U.S. a deal. He said he would voluntarily travel to the U.S. for trial if officials will provide him with bail and unfreeze his funds so that he can pay his legal fees. He tweeted, "Hey DOJ (Department of Justice), we will go to the US. No need for extradition. We want bail, funds unfrozen for lawyers & living expenses." He told a newspaper in July that he has “accumulated millions of dollars in legal bills” and has not been able to pay “a single cent.” But that’s not the only message he sent during his Twitter frenzy this week. On July 12, he tweeted, "Mr President music video coming soon. Asking @BarackObama to resurrect Megaupload. Yes he can. YOU have the power to convince him!"

What’s he up to in the meantime?

Aside from lobbying President Obama to relaunch Megaupload and fighting a PR war against the feds, Dotcom is busy developing his next project, Megabox, which he says will be released in four to six months. The free site will feature unlimited storage space for music, But it will also offer a music store where any artist, even those who are unsigned, can sell their music and keep 90 percent of their earnings. The website is also rumored to be using a service called Megakey to ensure that artists even get paid for free downloads.

But don’t worry, it’s not all work and no play for Kim Dotcom. He continues to indulge in a somewhat lavish lifestyle. In June, he hosted a pool party for a few of his Twitter followers, who wondered what his life was like. Dotcom even hinted that a larger event might be in the works. After the party, he tweeted, “#swimatkims will return for everybody. Need a big public pool. Awesome DJ. Sound and lights. Who’s in?”