Friday Morning

At 6:30 a.m on Friday 20th January 2012, two unmarked vehicles came to a sudden stop outside a sprawling $30 million dollar mansion in the upmarket area of Coatesville, near Auckland NZ. As a helicopter hovered above the property, the men on the ground climbed out the vehicles in single file and surrounded the entrance to the mansion. The local residents dismissed the commotion as more hi-jinx from their noisy neighbour. They were used to his flamboyant ways and love of the spectacular, so with his birthday celebrations imminent they knew this was probably just the start of the festivities.

James Bond hideaway: Kim Dotcom's sprawling mansion in Coatesville, north west of Auckland, can be seen in this image. Police today revealed the extraordinary details behind the arrest of the multi-millionaire

However this wasn't a leisure flight and the men surrounding the gates were not there for a party. They were local police officers. On board the helicopter, acting under the request of the  US Federal prosecutor, were FBI agents armed with fresh  indictments and their usual Glock 22's. Their mission was to arrest and detain seven company executives inside the house, including Kim Schmitz a.k.a. Kim Dotcom, and end their $500 million dollar illegal empire that spanned the entire globe. In short, the U.S. Government was making its move to end megaupload.com.

 
 

Early Years

Kim Schmitz began life on January 21, 1974 in Kiel, Germany. As a youngster Schmitz had a plan. He wanted to make money. Lots of it.

The most obvious way for Schmitz to achieve this was to sell the product that everyone wanted and somehow undercut the competition.

He noticed that the most sought after toys amongst his friends were computer games. Undeterred by his distinct lack of computer knowledge, financial acumen to produce a new game, or a business plan to somehow sell his product cheaper that the current market rate, Schmitz persisted with his plan.

His eventual 'master plan' was not subtle. He decided that in order to make the money he desired he would simply copy the best selling games of the time and sell them at a discount. He was moderately successful at this and was his first taste of intellectual property theft, and the financial rewards it brought, and this whetted his appetite for more. 

 

What set Schmitz apart from other computer hackers was not his intelligence or his incredible ability with hacking, because it was unclear if he had either. The reason  Schmitz stood out from the crowd  was because he was a showman and craved attention. 

A former associate of Schmitz was Dirk Engling, who is now a spokesman for the Chaos Computer Club where they first met.

"He was trying to make half a buck on every occasion offered him,"

said Engling. He went on to comment,

"Not having some real skills of his own, he was always using other people's inventions to attack systems and then claim he did it."

Schmitz's unique abilities lay within his massive ego and a gift for self-promotion that would leave most normal people ashamedly red-faced.

He made no secret of the fact that he was  a cyber-raider, or to be more accurate, he made no secret of claiming to be a cyber-raider. It has been reported that during this time he spent time hacking into computer networks at NASA, the Pentagon and at least one major bank. Whether this really happened or not is unclear. What is  clear is, if it did actually happen, Schmitz was not the computing genius behind the outfit.

With his own certain brand of self promotion and an inability to stay the right side of the law,  an inevitable prosecution would follow. He was eventually charged for a phone card scam in 1998. He escaped a  jail sentence and was placed on probation with a fine.

 
 

Internet Millionaire

In 2001, three years after the phone hacking charges, Schmitz resurfaced as a multi-millionaire playboy and claimed to reporters that he was worth over $200 million dollars.

It was unclear how Schmitz had supposedly earned this fortune, but few questions were asked by the media because of  the vast quantity of column inches that Schmitz antics gave the press.

It was a relationship that was self-perpetuating. The more Schmitz played the role, the more the tabloid papers wrote about his 'vast fortune' and playboy exploits. As the number of press stories increased the more the public believed it to be true, and as more people believed the story the more Schmitz played up to the role. 

 
 
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He was constantly seen in the company of beutiful models, driving fast cars, stumbling out of the trendiest nighclubs in the early hours of the morning or flying on his "own" private jet.

 
 
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His new found celebrity even managed to get him onto television and whilst appearing on a late night television chat show claimed,

"I have a different attitude towards money than those who hoard it. I would rather spend it and have a lot of fun."

Little did Schmitz know at the time of this charade, that his  real wealth was about to skyrocket.

 
 

His First Million

Later that year Schmitz announced to the press that he was going to rescue the struggling online retailer letsbuyit.com. He was going to invest in new technology and basically save the company from receivership. He promised and paid an initial funding of $4.9 milllion dollars with a further cash injection of $62 million coming later.

When the story was published, and the initial funding received, the stock took off. Letsbuyit.com was trading at $0.19 US before Schmitz's announcement and after two days of frantic buying and speculation the shares had climbed to a  high of  $0.77 dollars.  When Schmitz thought the shares had gone as far as they could, he dumped all his holdings. It was a classic pump-and-dump share fraud.

With the profits he received he paid back the initial funding amount of $4.9 million that he had borrowed from the bank for his stake in the company, which left him with a nice profit of $1.3 million. He was feeling so elated at the deal that on completion, Schmitz immediately fled to Thailand. It was almost as if he thought someone might be chasing him.

 
 
 

Thailand, Deportation and Bin Laden

During his time in Thailand he couldn't resist the spotlight and grabbed the headlines once again when, after the 9/11 attacks, he offered a reward of $10 million dollars for information that would lead to the arrest of Osama Bin Laden.

 

In May of 2001 he was back in a Munich court after the authorities had caught up with him and deported him back to Germany. Although he was convicted of stock manipulation he avoided jail but had to pay a fine of $124,000.

 
 
 

The Birth of Megaupload.com

 

In 2005 Schmitz would launch the website that would make his name, give him the adulation that his ego craved and ultimately bring about his downfall.

The domain Megaupload.com was registered in Hong Kong and with this Schmitz threw himself into the website completely. It wasn't just a website to him but a new way of life. At this point he legally changed his name to  Kim Tim Jim Vestor, then eventually to Kim Dotcom.

He wrote on Torrentfreak,

"Hong Kong, what an awesome place to do business and to host my new phantom persona. People here leave you alone and they are happy for your success."

The website was actually a good idea. It would allow people to register and then store files from their computer on the megaupload.com remote server.  This allowed members to free up the memories on their own P.C.'s while still keeping the software available to them to use if they needed.

 

The beauty of this site, and the reason it increased rapidly in popularity, was that it allowed subscribers to copy uploaded files from other members.

If one member uploaded a file that a lot of other people wanted to copy then the original member who uploaded the file was rewarded financially, based on the number of downloads and popularity.

For members downloading the costs were minimal and sometimes even nothing at all. With the growing popularity of the site and the sheer volume of traffic, Schmitz started making  money.

The official story was that megaupload was a place to simply share your work and collaborate with others, in reality it became the one of the top sites for the illegal copying and transmitting of films, computer games, music and software.

This was the same scam that Schmitz played back as a kid in Germany when he copied those computer games, but this time rather than just his class-mates he wanted to reach the whole planet.

Between 2006-2009 the sites membership exploded. It was due to the fact that file sharing was viewed by many teenagers as perfectly acceptable both legally and morally. In addition internet technology was increasing rapidly and with faster download speeds copying and sharing files became easier and easier. 

The authorities and mass media were largely unaware of the phenomena and it received little press coverage at first.

However as membership numbers increased and the illegal downloading continued the old Kim Schmitz came to the forefront again. He just couldn't help himself and had to show the world what he had done. He soon attracted celebrity attention and endorsements from the likes of Kim Kardashian, Will.i.am, and Kanye West. He then placed these celebrity endorsements on the home page of the site. It was just like earlier in his life, enjoying bragging about his accomplishments and loving the attention it brought on himself.

 

 

At the height of its fame it is estimated that Kim Dotcom, a.k.a. Kim Schmitz, made a staggering $115,000 a day, that around a cool $1 million dollars every 8 days.

 
 
 

Megadownload Stats

 

It's important to list just some of the stats for Megaupload just to get an idea of how big this site actually got before the authorities stepped in. It had around:

  • 4% of all Internet traffic worldwide
  • 50 million hits a day
  • 180 million members
  • 12 billion files
  • over one trillion page views in it's history
 
 

The Move to New Zealand

In 2010, 5 years after the launch of the site Dotcom decided to move to New Zealand.  In an attempt  to attract wealthy investors to the country, the Kiwi government was relaxing immigration laws for certain high net worth individuals who would invest a fixed amount in the country.

Dotcom duly obliged and invested  $7.8 million U.S. dollars in government bonds and sponsored a $500,000 dollar fireworks show in Auckland, much to the delight of many local citizens including the mayor.

His citizenship was duly granted and he moved into his $30 million dollar mansion complete with his wife and three children.

With megaupload.com now such a giant on the internet it was starting to get noticed. Firstly, an adult film company sued for copyright infringement and  the case was eventually settled out of court. 

However the first lawsuit was certainly not going to be the last.

The site was starting to get noticed by film, T.V. and computer software firms that lost an estimated $500 million as their products were illegally copied.

Pressure was mounting on the U.S. government from lobbyist representing the big businesses that were losing out due to the internet piracy, and when big business leans on the government there is usually only one outcome. Money talks.

The government decided they had to take a stance and they set their sights on bringing down megaupload.com and hopefully discouraging others from attempting anything similar.

 

 
 

The Arrests

 

On the night of January 20th Dotcom and some close friends had gathered at his house. Included in the assembled guests that night were three other executives of megaupload as they had gathered for Dotcoms pending birthday party. When he heard the helicopter overhead and the noise outside his gates he knew what was happening. He also knew that he wasn't going quietly. 

With the police at the front gates shouting through the intercom, Schmitz grabbed his sawn-off shotgun and headed to his special build-in panic room.

The police eventually broke through the electronic gates and barricades and took the front door down to get into the mansion.

They found Schmitz sitting alone with his shotgun but he didn't resist his arrest any further and the cuffs were placed on him and the three other executives of the site.

 The megaupload servers were shut down and the FBI seized all data files from the site.

 
 

Bail

Three days later, on the 23rd of January, Dotcom appeared in Auckland's court with the three other accused megaupload executives for a bail hearing. The prosecution argued that no bail should be given due to the flight risk and you could see their point, Dotcom had 18 cars, millions in the bank and a helicopter on his front lawn. It wouldn't be difficult for him to escape and disappear.

The defense argued that a helicopter couldn't travel far enough to reach the mainland of Australia but the judge decided to deny bail anyway. He knew that if Dotcom escaped back to Germany then there could be no deportion back to New Zealand for prosecution.

This decision was later overturned because in the interim, all Dotcoms cars, the helicopter and the house had been seized by police.

On 5 March 2012, a formal request for the extradition to the United States of Kim Dotcom and three other senior Megaupload staff was filed in a New Zealand court.

The following month on 30th April, Dotcom was given back $750,000 dollars in cash of his seized assets along with two cars,  but all other money in numerous bank accounts were to remain the property of the government.

So what now for Dotcom?

At present it appears that they might never be a trial against megaupload.com because of a blunder by the U.S. government. It was discovered that the FBI never actually filed any papers against the company, so no formal charges exist, and it is unclear how to proceed.

With the website now closed down, the majority of assets seized and the embarrassment of the U.S. government's inability to fill out the most basic of paperwork, it is unclear if this is truly the end of the story or not.

 
 
 

Megaupload.com Today

If you visit the site today you will only see a notice left by the U.S. government regarding the seizure of the domain. Although this site is now closed, the chief protagonsists are still free men and   online piracy is thriving. Rapidshare experienced exponential growth after the closure of megaupload as members simply continued their downloading and file sharing habits but moved their website of choice.

As for Dotcom, I think he'll be back. His claims that he did nothing wrong are still as laughable today as they were when the indictments first hit. There may not be a full trial coming anytime soon but Dotcom will be back in the media spotlight soon, he just can't help himelf.

 
 

Bibliography

http://www.smh.com.au/technology/technology-news/dotcoms-boom-to-bust--he-was-trying-to-make-half-a-buck-on-every-occasion-20120228-1u03x.html#ixzz1vn5QaimA

http://en.wikipedia.org/wiki/Kim_Dotcom

http://en.wikipedia.org/wiki/Mega_Upload