Megaupload: What's Next for Founders, Users?

Two of the four Megaupload executives currently incarcerated in New Zealand are set to be released on bail.

In an Auckland courtroom, Judge David McNaughton Thursday granted bail to Megaupload's chief marketing and sales officer, Finn Batato, as well as "programmer in charge" Bram van der Kolk. Both will be released on bail once their local addresses have been verified and they have agreed to submit to electronic monitoring and not to use the Internet.

Their arrests came at the request of the FBI, after the Justice Department last week unsealed a 72-page indictment accusing seven Megaupload executives of operating a criminal enterprise based on copyright infringement that netted more than $175 million. The Justice Department will have 45 days from the date of the men's arrest to formally file for their extradition to the United States, although legal experts say that it might take a year for such extraditions to be carried out.

Of the two other men arrested--in a joint raid involving New Zealand police, the Justice Department, and the FBI--McNaughton has yet to rule on Megaupload CTO Mathias Ortmann. But he denied bail Wednesday to the company's 38-year-old founder and chief, Kim Dotcom (aka Kim Tim Jim Vestor, aka Kim Schmitz). Dotcom's lawyer had argued that with his frozen assets and local family ties, he wasn't a flight risk. Dotcom has also denied all of the charges leveled against him in the indictment.

Police, meanwhile, argued that Dotcom was a flight risk, noting that he holds dual German and Finnish citizenship, and was likely to possess secret bank accounts abroad. The judge agreed, noting that Dotcom holds passports in three different names and had $21 million stashed in 23 different Hong Kong bank accounts, as reported in Wired. The judge also cited the fact that when Dotcom was arrested, he was in a room with an unlicensed firearm--police said it appeared to be a sawed-off shotgun. Finally, he thought it likely that Megaupload, which still has 30 employees, would have a plan in place to restore the data it had been storing and set up shop again outside U.S. jurisdiction.

[ For more background on the Megaupload takedown, read Anonymous Retaliates For Megaupload Raids: 10 Key Facts. ]

In addition to the four men arrested in New Zealand, Dutch police have since arrested Andrus Nomm, Megaupload's head programmer. Meanwhile, German citizen and resident Sven Echternach, the company's head of business development, has been located in Germany, but it's not clear if he's been arrested.

The arrests, however, aren't the only Megaupload-related legal maneuvers underway. Notably, moves are afoot to catalog the number of disenfranchised Megaupload customers. "The widespread damage caused by the sudden closure of Megaupload is unjustified and completely disproportionate to the aim intended," read a statement released by the Pirate Party of Catalonia.

Accordingly, it said it's been coordinating efforts with other Pirate Parties and "begun investigating these potential breaches of law and will facilitate submission of complaints against the U.S. authorities in as many countries as possible, to ensure a positive and just result." It also requested any affected users to use the site to register their complaint, so that the Pirate Parties can amass a list of everyone affected by the takedown.

The Justice Department, meanwhile, has cast doubt on whether such a legal strategy would succeed. For example, Megaupload's terms of service "clearly warned users not to keep a sole copy of material on the site, and that its material could be made unavailable at any time," said a Justice Department spokeswoman said via email. "In fact, Megaupload.com expressly informed users through its Frequently Asked Questions ('FAQs') and its Terms of Service that users have no proprietary interest in any of the files on Megaupload's servers, they assume the full risk of complete loss or unavailability of their data, and that Megaupload can terminate site operations without prior notice."

Furthermore, according to the Justice Department's indictment, the site didn't appear to be designed to be used as a long-term self-storage cyberlocker such as Box.net, Dropbox, or Skydrive. "Unregistered anonymous users ... are allowed to upload and download content files, but any non-member-uploaded content that is not downloaded within 21 days is permanently deleted," according to the indictment. "Similarly, registered free users (or 'members') are allowed to upload and download content files, but each uploaded file must be downloaded every 90 days in order to remain on the system."

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