In February 2003, Dotcom set up Data Protect Limited, but changed the name to
Megaupload in 2005. Megaupload was an online
file-hosting and
sharing service in which users could share links to files for viewing or editing, much of it pirated. Eventually it had over 150 employees, US$175 million revenues, and 50 million daily visitors. At its peak Megaupload was estimated to be the 13th-most popular site on the Internet and responsible for 4% of all Internet traffic. On 5 January 2012,
indictments were filed in
Virginia in the United States against Dotcom and other company executives with crimes including racketeering, conspiring to commit copyright infringement, and conspiring to commit money laundering. Two weeks later on 20 January, Dotcom, Finn Batato, Mathias Ortmann and Bram van der Kolk were arrested in
Coatesville, New Zealand by the New Zealand Police, in an armed raid on Dotcom's house involving 76 officers and two helicopters. Seized assets included eighteen luxury cars, large TVs, works of art and US$175 million in cash. Dotcom's bank accounts were frozen, denying him access to 64 bank accounts world-wide, including BNZ and Kiwibank accounts in New Zealand, government bonds and money from numerous
PayPal accounts. Dotcom was
remanded to
Mt Eden Prison and alleged poor treatment by the authorities. On 22 February, North Shore District Court Judge Nevin Dawson overturned previous rulings and released Dotcom on bail, reasoning that Dotcom had neither the ability nor desire to flee the country.
High Court On 28 June 2012,
High Court of New Zealand Justice
Helen Winkelmann found that the warrants used to seize Dotcom's property were illegal because they were too broad. The Crown later admitted that it was aware that it was using the wrong order while the raid was in progress and that Dotcom should have been given the chance to challenge the seizure. It also admitted to giving seized hard drives to the FBI, who made copies of them in New Zealand and then sent them back to the US.
Court of Appeal In May 2012, a district court judge ruled that the FBI should hand over all its evidence against Dotcom relating to the extradition bid. The Crown appealed, but the ruling was upheld by the High Court. The Crown appealed again and in March 2013, the Court of Appeal quashed the previous court decisions. Crown lawyer John Pike, on behalf of the US Government, argued that the district court had no power to make disclosure decisions in an extradition case and that "disclosure was extensive and could involve billions of emails". The Court of Appeal agreed stating that extradition hearings were not trials and the full protections and procedures for criminal trials did not apply. Dotcom's lawyer, Paul Davison, QC, appealed to the Supreme Court. In May 2013, the Supreme Court agreed to hear the case, so it will make the final decision on whether Dotcom should receive all the FBI investigation files before the extradition hearing. A series of subsequent court decisions delayed every attempt to hold a hearing focused on extradition. In March 2013, Dotcom won a Court of Appeal ruling allowing him to sue the New Zealand
Government Communications Security Bureau (GCSB), rejecting the attorney's-general appeal against a ruling in December 2012. A month later, Dotcom appeared in court again, seeking compensation from police over the raid on his house, which earlier had been deemed illegal.
Confidential settlement with police In November 2017, Dotcom and his former wife Mona accepted a confidential settlement from the police over the raid. The settlement came after a damages claim was filed with the High Court over the "unreasonable" use of force when the anti-terrorism
Special Tactics Group raided his mansion in January 2012. Settlements have already been reached between police and Bram van der Kolk and Mathias Ortmann, who were also arrested.
The New Zealand Herald reported that their settlements were six-figure sums and "it is likely Dotcom would seek more as the main target in the raid". Commenting on the settlement, Dotcom said: "We were shocked at the uncharacteristic handling of my arrest for a non-violent Internet copyright infringement charge brought by the United States, which is not even a crime in New Zealand".
Supreme Court In February 2014, the
New Zealand Court of Appeal deemed the raids on Kim Dotcom to be legal but not the FBI's taking of information. Dotcom appealed this decision to the Supreme Court. In December four of the five judges agreed with the Court of Appeal that the raid was legal and ordered Dotcom to pay $35,000 costs. Chief Justice
Sian Elias dissented, saying there had been a miscarriage of justice as the
search warrant was too broad. A month before the Supreme Court decision, Dotcom's legal team quit after he had spent $10 million on his defence, financed the Internet Party, then run out of money. When the US tried to have his bail revoked, a new lawyer, Ron Mansfield, helped keep him out of prison. In December 2014, events took another turn when the High Court in Hong Kong ruled that the United States "did not have a clear path to serve a legal summons on Dotcom's filesharing company" and he could take a case to get back $60 million seized by authorities there. In making this decision, Judge Tallentire said, "No one can say when that process of extradition will be completed given the appeal paths open to the various accused. Indeed, no one can say if it will ever be completed".
Political fallout After his arrest by the New Zealand police in January 2012, Dotcom had an ongoing dispute with Prime Minister
John Key about when Key had first become aware of Dotcom. Dotcom argued that Key had been involved in a plan to allow him into New Zealand so that he could then be extradited to the US to face copyright charges. Key had consistently said he had never heard of Dotcom until the day before the New Zealand police raid on his mansion in Coatesville.
Apology for illegal spying on Dotcom On 24 September 2012, Key revealed that, at the request of the police, the New Zealand GCSB had spied on Dotcom to help police locate him and monitor his communications in the weeks prior to the raid on his house. The GCSB are not allowed to spy on New Zealand citizens or permanent residents; Dotcom, though not a citizen, had been granted permanent residency. Three days later, Key apologised for the illegal spying.
Application for damages In December 2012, Chief High Court judge Helen Winkelmann ordered the GCSB to "confirm all entities" to which it gave information. This also allowed Dotcom to sue the Crown for damages. The Crown appealed Justice Winkelmann's decision, but in March 2013, the Court of Appeal upheld the High Court's decision. Dotcom was unable to access the information, but Stuart Grieve QC, who was appointed as a Special Advocate, was given access. Dotcom argued in the Court of Appeal that there had been judicial miscarriage, but the court ruled in favour of the GCSB. Dotcom next sought leave to appeal to the Supreme Court but in February 2020, it rejected his appeal and ordered him to pay the GCSB NZ$2,500.
Media reaction The mistakes by authorities attracted widespread media coverage and Key's handling of the affair was criticised by opposition parties in Parliament. Political commentator Bryce Edwards criticised the GCSB's involvement and described the prosecution of Dotcom as "the stuff of farce".
The Sunday Star-Times commentator Richard Boock compared the Dotcom saga to
Watergate and suggested it might eventually 'bring down' John Key. The story made headlines overseas, including in
The Wall Street Journal,
The New York Times,
The Guardian and the
Hollywood Reporter which specialises in legal and entertainment issues.
On US involvement in his arrest Dotcom claimed to be a legitimate businessman who has been persecuted by the United States government and industry trade groups such as the
RIAA and
Motion Picture Association of America (MPAA). He blames former US President
Barack Obama for colluding with Hollywood to orchestrate his arrest In May 2013, Dotcom released a 39-page
white paper alleging that the US government persecuted him at the behest of Hollywood, in exchange for support for Obama. Speculation about Hollywood's role in Dotcom's arrest grew when, in September 2012, Key made a four-day visit to meet top studio executives. Key said the trip was intended to promote New Zealand as a good country to produce films, but he was planning to meet with the MPAA, which had described Dotcom as "a career criminal". ==Internet Party==