Megauploads charged with…what?

The news reports have been fast and…confusing. Or careful, as they ought to be. The internet world is far more difficult to police than the geographical one, tough as that one is.

So as CNN asks, what is this all about?

Megaupload, the file-sharing website shut down Thursday by the U.S. federal government, is a Web hosting tool that now finds itself accused of being an online haven for digital pirates.

Many people probably never have heard of the site. But to millions, the 6-year-old site, based in Hong Kong, was a fast, easy way to store massive files in a “locker” online and then share them with friends or colleagues.

At various points in its history, Megaupload has been among the most popular websites in the world.

And it once had the support of some celebrities. A (really bizarre) YouTube video shows Kanye West, Kim Kardashian, P. Diddy and several other celebrities vouching for the site in an apparent music video-style advertisement.

But the site has long suffered accusations of allowing less-than-legal files to pass through its computer servers.

“Megaupload was always going to get taken down — far too flagrant publication of copyrighted material,” Jonathan Riggall, a website editor living in Barcelona, Spain, wrote on TorrentFreak, a blog devoted to file-sharing issues.

“I think sharing on the Web is great, and I don’t care if it’s copyrighted material — but Megaupload and some similar sites are making loads of money out of making it possible for people to view pirated stuff. Of course they will be targeted as they are blatantly breaking laws.”

The U.S. attorney for Megaupload.com denies the government’s allegations.

And their attorney team is getting to be impressive and high-profile.

Bob Bennett, the man who defended Bill Clinton during the Monica Lewinsky scandal, was on Thursday retained to represent Megaupload.

Speaking to the Guardian, Bennett said: “All I am at liberty to say at this stage is that we will be vigorously defending the case.”

The attorney’s former clients also include collapsed energy giant Enron, and former defence secretaries Clark Clifford and Casper Weinberger.

If found guilty of charges including racketeering, the Megaupload executives arrested could face a sentence of up to 50 years in prison.

The prosecution of Megaupload represents one of the biggest copyright cases in US history.

[Founder Kim] Dotcom [whose original name is Kim Schmitz] is accused of heading up a criminal venture that illegally cheated copyright holders out of $500m in revenue over a five-year timeframe.

The 37-year-old and his associates are said by prosecutors to have profited to the tune of $175m as a result.

Here’s how, according to the claim.

The site offered what’s called “one-click hosting,” letting users upload anything on their hard drive or in cloud storage to the Web.

The service gives users a URL that can then be shared with others — often on discreet online message boards or social networks — letting them access the file as well.

MegaVideo was the site’s video service, letting even nonmembers view more than an hour of video at a time on the site, and MegaPix was a photo storage and sharing site in the mold of Flickr or Photobucket.

People who paid for a premium account on the site were able to upload and download larger files.

It was, by all accounts, a successful business model.

The U.S. government said that it seized $50 million in assets and that much of the $175 million the site has earned since 2005 was due to copyright infringement. As Ars Technica notes, even the site’s graphic designer reportedly earned $1 million last year, and between them, the seven indicted people (including the creatively named Kim Dotcom) owned 15 Mercedes-Benzes, a Maserati, a Rolls-Royce and a Lamborghini. The blog TechCrunch has posted photos of seized assets, including the cars and a large house in New Zealand, in case you’re interested.

Publicly, at least, the site frowned on illegal uploads. It featured a tool to report “abuse,” gave copyright holders the ability to hunt for illegal content and registered with the U.S. government under the Digital Millennium Copyright Act, a law aimed at fighting piracy.

The site’s owners have denied any wrongdoing in regard to copyright violation, and their attorney has said the site was wrongly shut down before its owners were allowed to address the charges against them.

But the Justice Department says the anti-theft efforts were a facade — that Megaupload’s employees knew they were enabling piracy and made the site difficult for outsiders to search for illegal material.

This is inflaming worldwide reaction. In the ‘observations and provocations from the L.A. Times’ Opinion Staff’…

The indictment the Justice Department obtained this month against MegaUpload, a popular online locker and file-sharing service, includes allegations that company executives personally uploaded and downloaded copyrighted content — a familiar accusation in online piracy cases. But it adds a couple of intriguing twists that blur the distinction between actions that promote piracy and those that discourage it. And it echoes the argument by major labels and movie studios that content-sharing platforms have a duty to monitor their users for infringements, an assertion that U.S. courts have largely rejected.

The core allegations against Kim Dotcom and his colleagues at MegaUpload, if true, make the case that company officials knew about the infringing activity and, rather than honoring requests from copyright holders to stop it, encouraged it. In addition to accusing executives (the indictment refers to them collectively as the “Mega Conspiracy”) of personally infringing, the indictment contends that the company copied videos wholesale from YouTube without permission, made duplicate links to content that would stay live after copyright holders forced the original link to be removed, and paid repeat infringers instead of banning them…

So it may be that MegaUpload is, in fact, a big, lucrative conspiracy to profit off of Internet users’ love of free (and illegal) downloads. Still, I was struck by how far the indictment goes to find something nefarious…

So was I, but for two reasons not mentioned in any of these links. One, for the timing, when SOPA and PIPA were up for debate in Congress, with a worldwide backlash.

And two, for the startling last line of this news story, citing the Justice Department…

Other material found uploaded included child pornography and terrorism propaganda videos, according to the indictment.

If true, why would the Justice Department tip their hand in this early stage? And why would the story drop it in as the last line? It struck me as jarringly off base from the major violations cited of copyright infringement and internet piracy.

Stay tuned, this is a developing story.