One of the world's most popular file-sharing sites was shut down, and its founder and several company officials were accused of facilitating millions of illegal downloads of films, music and other content.
A federal indictment Thursday accused Megaupload.com of costing copyright holders at least $500 million in lost revenue. The indictment was unsealed one day after websites including Wikipedia and Craigslist shut down in protest of two congressional proposals intended to make it easier for authorities to go after sites with pirated material, especially those with overseas headquarters and servers.
The news of the shutdown seemed to bring retaliation from hackers who claimed credit for attacking the Justice Department's website. Federal officials confirmed it was down Thursday evening and that the disruption was being "treated as a malicious act."
A loose affiliation of hackers known as "Anonymous" claimed credit for the attack. Also hacked was the site for the Motion Picture Association of America and perhaps others.
Megaupload is based in Hong Kong, but some of the alleged pirated content was hosted on leased servers in Ashburn, Virginia, which gave federal authorities jurisdiction, the indictment said.
The Justice Department said in a statement said that Kim Dotcom, 37, and three other employees were arrested Thursday in New Zealand at the request of U.S. officials. Three other defendants are at large.
The Electronic Frontier Foundation, which defends free speech and digital rights online, said in a statement that, "This kind of application of international criminal procedures to Internet policy issues sets a terrifying precedent. If the United States can seize a Dutch citizen in New Zealand over a copyright claim, what is next?"
Before Megaupload was taken down, it posted a statement saying allegations that it facilitated massive breaches of copyright laws were "grotesquely overblown."
"The fact is that the vast majority of Mega's Internet traffic is legitimate, and we are here to stay. If the content industry would like to take advantage of our popularity, we are happy to enter into a dialogue. We have some good ideas. Please get in touch," the statement said.
Meanwhile, the Justice Department said its Web server for justice.gov was "experiencing a significant increase in activity, resulting in a degradation in service." It was working to fix it and "investigate the origins of this activity, which is being treated as a malicious act until we can fully identify the root cause of the disruption," the agency's statement said.
A spokesman for the Motion Picture Association of America said in an emailed statement that the group's site had been hacked, although it appeared to be working later in the evening.
"The motion picture and television industry has always been a strong supporter of free speech," the spokesman said. "We strongly condemn any attempts to silence any groups or individuals."
Megaupload was unique not only because of its massive size and the volume of downloaded content, but also because it had high-profile support from celebrities, musicians and other content producers who are most often the victims of copyright infringement and piracy. Before the website was taken down, it contained endorsements from Kim Kardashian, Alicia Keys and Kanye West, among others.
The company listed Swizz Beatz, a musician who married Keys in 2010, as its CEO. He was not named in the indictment and declined to comment through a representative.
According to the indictment, Megaupload was estimated at one point to be the 13th most frequently visited website on the Internet. Current estimates by companies that monitor Web traffic place it in the top 100.
The five-count indictment, which alleges copyright infringement as well as conspiracy to commit money laundering and racketeering, described a site designed specifically to reward users who uploaded pirated content for sharing, and turned a blind eye to requests from copyright holders to remove copyright-protected files.
For instance, users received cash bonuses if they uploaded content popular enough to generate massive numbers of downloads, according to the indictment. Such content was almost always copyright protected.
The site boasted 150 million registered users and about 50 million hits daily. The Justice Department said it was illegal for anyone to download pirated content, but their investigation focused on the leaders of the company, not end users who may have downloaded a few movies for personal viewing.
A lawyer who represented the company in a lawsuit last year declined comment Thursday. Efforts to reach an attorney representing Dotcom were unsuccessful.
Megaupload is considered a "cyberlocker," in which users can upload and transfer files that are too large to send by email. Such sites can have perfectly legitimate uses. But the Motion Picture Association of America, which has campaigned for a crackdown on piracy, estimated that the vast majority of content being shared on Megaupload was in violation of copyright laws.
The website allowed users to download some content for free, but made money by charging subscriptions to people who wanted access to faster download speeds or extra content. The website also sold advertising.
The indictment was returned in the Eastern District of Virginia, which claimed jurisdiction in part because some of the alleged pirated materials were hosted on leased servers in Ashburn, Virginia. Prosecutors there have pursued multiple piracy investigations.
Steven T. Shelton, a copyright lawyer at the Cozen O'Connor firm in New York, said opponents of the legislation are worried the proposals lessen the burden for the government to target a wide variety of websites. Shelton said he expects to see the government engage in more enforcement in the future, as technology makes it easier to catch and target suspected pirates.
"I think we'll be seeing more of this," he said. "This is just the beginning."
Dotcom, a resident of both Hong Kong and New Zealand, and a dual citizen of Finland and Germany, made more than $42 million from the site in 2010 alone, according to the indictment.
Dotcom had his name legally changed. He was previously known as Kim Schmitz and Kim Tim Jim Vestor. He is founder, former CEO and current chief innovation officer of Megaupload.
Officials estimated it could be a year or more before Dotcom and the others arrested in New Zealand are formally extradited.
The others arrested were Finn Batato, 38, a citizen and resident of Germany, the company's chief marketing officer; Mathias Ortmann, 40, a citizen of Germany and resident of both Germany and Hong Kong, who is the chief technical officer, co-founder and director; and Bram van der Kolk, aka Bramos, 29, a Dutch citizen and resident of both the Netherlands and New Zealand, who oversees programming.
Still at large are Julius Bencko, 35, a citizen and resident of Slovakia, the site's graphic designer; Sven Echternach, 39, a citizen and resident of Germany, head of business development; and Andrus Nomm, 32, a citizen of Estonia and resident of both Turkey and Estonia, head of the development software division.
Several sister sites were also shut down, including one dedicated to sharing pornography files.