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Megaupload Execs Had Thing For Bling, Indictment Shows

Indictment in Megaupload case reveals intriguing details, including assets that could be seized by the Feds. For starters, think $8 million allegedly spent on yacht rentals, 15 Mercedes-Benzes, and a Rolls-Royce with this license plate: GOD

But authorities have accused the site of downplaying copyright violations that occurred on the site, while actively promoting those violations for their own profit, including earning at least $150 million by offering premium subscription services to its uploaders. According to one chat transcript from 2008 quoted by investigators, for example, Bram van der Kolk, a Dutch citizen who oversaw Megaupload's programming and network infrastructure, allegedly said, "We have a funny business ... modern day pirates :)." In response, CTO Ortmann said, "We're not pirates, we're just providing shipping services to pirates :)".

According to the indictment, "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." In addition, it said that Megaupload offered financial incentives to people who uploaded popular content, and even to "users whom they specifically knew uploaded infringing content." Uploaders could receive $100 to $300--or occasionally up to $1,500--for each month that they uploaded popular material, even while Megaupload paid little to the owners of the copyrighted works from which they profited.

Furthermore, authorities accused Megaupload of running a bait-and-switch maneuver when copyright holders requested that their material be expunged from the site. While the site offered copyright holders a tool to automatically do that, in fact the tool would typically only remove a single link to the file, while leaving other links to the same file intact. By not offering a public search function for all files that it hosted, and relying on third-party sites to list links, authorities said that Megaupload managed to obscure this practice.

Megaupload, at least at one point, considered itself the thirteenth-most-visited site on the Internet, and until its shutdown, was renting 525 servers in Virginia from Carpathia Hosting and 630 servers in the Netherlands from Leaseweb, amongst other locations and hosting providers. To support that infrastructure, authorities alleged that between 2007 and 2010, Megaupload executives used PayPal to transfer $13 million to the chief financial officer of Carpathia Hosting, and at least $9 million to Leaseweb. Numerous other payments were made via bank transfers.

Megaupload's executives appear to have recently begun pursuing a legitimacy campaign based on trashing their rivals. The indictment quoted an email from Megaupload CEO Dotcom to PayPal in October 2011, in which he said Megaupload was about to file suit against rivals over their practice of paying for pirated content. "They are damaging the image and the existence of the file hosting industry (see what's happening with the Protect IP Act)," said Kim. "Look at Fileserve.com, Videobb.com, Filesonic.com, Wupload.com, Uploadstation.com. These sites pay everyone (no matter if the files are pirated or not) and have NO repeat infringer policy. And they are using PayPal to pay infringers." Interestingly, those are some of the exact charges that have since been leveled by authorities at Megaupload's executives.

Nominate your company for the 2012 InformationWeek 500--our 24rd annual ranking of the nation's very best business technology innovators. Deadline is April 27. Organizations with $250 million or more in revenue may apply for the 2012 InformationWeek 500 now.

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Guest,
User Rank: Apprentice
1/22/2012 | 11:03:33 PM
re: Megaupload Execs Had Thing For Bling, Indictment Shows
There is no need for a "balance to be struck" with the Motion Picture industry. They do not get their own version of the law. The balance has been struck in the legal process. We are not throwing out due process and the presumption of innocence because it doesn't suit their interests.

From a business perspective, this is entirely the wrong approach for the Motion Picture industry to take. See how well it worked for the recording industry when they took down Napster? The recording industry became detested, not Napster, and 100 other sites rose up to replace Napster. 1) Without basically shutting down the internet, you are never going to keep up with all of the pirate sites. 2) The way to handle this is to offer a premium experience that the pirates cannot offer (i.e. iTunes or YouTube ad revenue for the recording industry). They are currently trying to fight a force (the internet) which they cannot control with all of the FBI raids in the world. Innovate the business model, don't try to sue your way to success.
westsyde
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westsyde,
User Rank: Apprentice
1/21/2012 | 6:26:04 PM
re: Megaupload Execs Had Thing For Bling, Indictment Shows
The great intellectuals here at InformationWeak do not seem to possess much intellectual curiosity - the disgrace of the US Government with its actions on the dajaz1.com site takedown, denial of due process, and unnecessary secrecy should scare the propeller cap off of your head.

Given their track record, this attack on Megaupload has all the makings of another bogus seizure.

As far as the 'bling' factor goes, name me a CEO of a large corporation in America who does not possess and flaunt similar opulence? What this article is in reality - a lame attempt to disparage Megaupload's CEO. Are you trying to assist the feds by convicting Megaupload in the court of public opinion? I would fire your attorneys, your case is weak.
Bprince
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Bprince,
User Rank: Apprentice
1/21/2012 | 2:11:56 AM
re: Megaupload Execs Had Thing For Bling, Indictment Shows
@readers - since many have brought up the subject of people using the site legitimately, what should the government and record/movie industry do to enforce copyrights on sites such as Megaupload? Is there any balance to be struck here?
Brian Prince, InformationWeek/Dark Reading Comment Moderator
CMOONEY152
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CMOONEY152,
User Rank: Apprentice
1/20/2012 | 7:34:49 PM
re: Megaupload Execs Had Thing For Bling, Indictment Shows
Simple, obvious, not at all insightful. How about you take on a reporting challenge?

Wide and "popular" reports about infractions and assets of Megaupload's primaries, ignore those who were using Megaupload for legitimate purposes. Wide reporting about "Anonymous" driving the largest cyber attack to date, ignore that the FBI's shutdown of Megaupload as the largest cyber attack ever. We all already know Megaupload's primaries and Anonymous are out of control and should face justice. But, I hope some of the legitimate users damaged by poorly implemented law enforcement are able, and motivated, to legally pursue both restitution and punitive claims since the media seems not to have the guts to take on a true journalistic challenge. That is: I hope someone makes all us (U.S.A.) pay for allowing our FBI to act so irresponsibly, and that such pain will effect changes, since there seems no other way their actions will be revealed, evaluated, and corrected.

I would expect Information Week to look more into the deep impacts of these events, rather than this Paparazzi style fluff.
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