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Feds broaden piracy case against Megaupload.com

By the CNN Wire Staff
February 18, 2012 -- Updated 0137 GMT (0937 HKT)
Megaupload.com and Megavideo.com allegedly reproduced copyrighted works from third-party websites.
Megaupload.com and Megavideo.com allegedly reproduced copyrighted works from third-party websites.
STORY HIGHLIGHTS
  • New counts include copyright infringement, conspiracy to commit money laundering
  • Megaupload and related sites were shut last month
  • Several of the sites' alleged leaders were arrested

(CNN) -- A month after carrying out one of the largest anti-piracy crackdowns ever, federal authorities have added charges and broadened their case against the defendants.

The 90-page superseding indictment, which was returned Thursday in the Eastern District of Virginia, adds counts of criminal copyright infringement, conspiracy to commit money laundering and wire fraud against Megaupload.com and Megavideo.com.

The websites were shut and several of their alleged leaders were arrested in January.

The defendants allegedly reproduced copyrighted works from third-party websites, including from YouTube.com, so that they could be copied and distributed via Megavideo.com and to give the false impression that the website hosted content that was primarily generated by users and was not copyright-infringing content, the indictment says.

"In contrast to legitimate Internet distributors of copyrighted content, Megaupload.com does not make any significant payments to the copyright owners of the many thousands of works that are willfully reproduced and distributed on he Mega Sites each and every day," the government says.

In addition, the document says that the defendants' claim of more than 180 million registered users is not supported by their own records, which show only 66.6 million registered users as of January 19.

Those records also show that just 5.86 million of these users ever uploaded a file to Megaupload.com or Megavideo.com, meaning that more than 90% of the sites' registered users used the systems solely to download, it says.

Among those indicted is Kim Dotcom, the founder of Megaupload. His lawyer said after the initial indictment that his client is innocent, a law-abiding entrepreneur committed to raising his young family in New Zealand.

Dotcom is a resident of New Zealand, where he employs more than 50 staff, and Hong Kong, where he has a suite at the Grand Hyatt Hotel.

The superseding indictment cited the case of one alleged infringer referred identified only as "VV."

Over six years, VV had uploaded nearly 17,000 files to Megavideo.com, which resulted in more than 334 million views, it said. Though VV had been the subject of numerous takedown e-mails, none of those files had been deleted, it said.

The government also added property, bank accounts, jet skis, jewelry and watches to the list of assets subject to forfeiture, and estimated the value at at least $175 million.

The defendants were first charged in a five-count indictment returned on Jan. 5 and unsealed on Jan. 19. The counts were: conspiracy to commit racketeering, conspiracy to commit copyright infringement, conspiracy to commit money laundering, and two counts of copyright infringement.

Five of the seven individuals indicted have been arrested, and at least $50 million in assets have been "restrained," the Department of Justice said in a news release.

Last month, Megaupload's fans turned the table on the feds. "Hacktivist" collective Anonymous said it set its sights on the U.S. Department of Justice and apparently knocked the agency's website offline.

The DOJ website glitches came soon after various Twitter accounts associated with Anonymous took aim at the agency.

Anonymous's favorite weapon for these attacks is a "distributed denial of service" (DDoS) attack, which directs traffic to a website and overwhelms its servers, causing it to crash. The practice involves neither hacking nor any breach of security.

It was Anonymous' largest attack ever, according to an Anonymous representative, with 5,635 people using a networking tool called a "low orbit ion cannon." A LOIC is software tool that aims a flood of traffic at a targeted site.

Authorities said the "Mega Conspiracy" organization had generated more than $175 million in illegal profits through advertising revenue and the sale of premium memberships.

According to the indictment, Megaupload, which launched in 2005, was once the 13th most-visited website on the Internet, serving as a hub for distribution of copyrighted television shows, images, computer software and video games.

The site's popular MegaVideo subsidiary was widely known in tech circles for its broad selection of pirated content, including movies and episodes of hit TV shows.

To shut Megaupload, federal authorities executed 20 search warrants in eight countries, seizing 18 domain names and $50 million worth of assets, including servers located in Virginia, Washington, the Netherlands and Canada.

The individuals indicted are citizens of New Zealand, Germany, Slovakia and the Netherlands. No U.S. citizens were named. However, Megaupload has servers in Ashburn, Virginia, and Washington, which prompted the Virginia-based investigation.

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