//
you're reading...
Internet

US v. KIM DOTCOM – PART I OF THE MEGAUPLOAD SAGA: THE CURIOUS CASE OF KIM DOTCOM

Kim Dotcom has led an interesting life. Born Kim Schmitz in Kiel, Germany, in 1974, the 6’6″, ~300 lbs., father of 5 (including twin girls born earlier this year) has been in the public spotlight, and had brushes with the law, since he was a teenager. At 19, he was known as Kimble (referencing the main character of The Fugitive), a Munich-based hacker who had cracked United States corporate PBX codes (PBX is Private Branch eXchange, a term for a phone system serving a particular office). In the days before Skype, this let people who purchased the codes from him to make ‘free’ long-distance phone calls by charging them to the business. On March 16, 1994, in what appeared to be a sting set up by MCI, 20 police raided his home, seized $80,000 in computer equipment and took him to jail. He was convicted in 1998, and sentenced to two tears of juvenile detention.

In the meantime, ‘Dotcom also used his expertise to try to get into computer security consulting, and in 1994 founded a company called DataProtect. In 1999, DataProtect introduced a special Mercedes-Benz with a built-in 17″+ flat screen monitor, Windows, and mobile broadband wireless. Yes, mobile broadband wireless in a Mercedes in 1999. In 2000, Dotcom sold 80% of his shares to German company that when bankrupt the following year in the (regular) dotcom-bubble crash. Dotcom and his modified Mercedes have been a frequent participant in the international road rally event the Gumball 3000, winning it in 2001, and finishing in 2004. Yes, he’s also won an international road rally.

In 2001, Dotcom did a couple things that would result in a 2002 and 2003 conviction, including Germany’s largest insider trading case at the time, and embezzlement. The embezzlement charge was due to a ‘loan’ that Dotcom arranged between two companies that he owned, which ended up with money in his pocket and both companies going bankrupt. Dotcom maintained he was innocently ‘dazzled’ and thought he could repay the loan. The insider trading was part of a pump-and-dump scheme. Here’s how ‘pump-and-dump’ works. First, you buy shares of a stock, generally a troubled ‘penny stock’ which trades cheap, so you can buy a lot shares. In this case, it was 375,000 Euro worth of LetsBuyIt.com, a nigh-bankrupt company. Second, you ‘pump’ the stock, by making knowingly false claims to the public about good prospects for the company’s future. Here, Dotcom announced he would be investing 50 million Euro that he didn’t have into LetsBuyIt.com. Then, when the stock is inflated thanks to your misrepresentations, you ‘dump’ the stock by selling it off and pocketing the profit. Here, when Dotcom sold off his shares a few days later, the 375,000 had become over 1.5 million Euro. He was arrested in Bangkok in 2002 and deported back to Germany.

Jump to March 2005, the year Schmitz legally changed his surname to Dotcom. It is at this time Dotcom claims that he reformed his criminal ways and set out to start a new life on the right path. He forms the company Megaupload Limited as a Hong Kong based business. There will be a lot more on Megaupload in subsequent parts of this story, but it should be noted that the company grew so large as to become 4% of all internet traffic at its peak, with 50 million users a day. That is correct, 4% of ALL internet traffic was on Megaupload, the 13th most popular site on the internet.

With his company reaching revenues of $175 million annually, in 2010, Dotcom and his family moved to New Zealand where he was granted permanent residency. He leased the largest private residence in all of New Zealand, a $30 million dollar mansion in Coatesville. He began making large charitable donations in 2011, including earthquake disaster relief, and funding public fireworks shows. Yet, New Zealand has a good character test to be able to purchase land, and Dotcom was denied the power to purchase the mansion when the lease expired, though he remained living there, presumably on a new lease.

In November 2011, the videogame Call of Duty: Modern Warfare 3 released. In the first 24 hours, there was 7 million hours of gameplay logged and $400 million spent, making it the largest entertainment release, well, ever. By contrast, Avengers shattered box office records by making $200 million in its opening weekend. From his mansion in New Zealand, Dotcom used the name MEGARACER to become the #1 player on the leaderboards. Yes, Dotcom was the best player in the biggest all-time videogame. This video shows his path to #1:

Dotcom maintained the number one spot in MW3 until his arrest in January of this year for US criminal copyright infringement related to Megaupload, which will be the subject of subsequent parts to this important, and interesting, story. Next, we trace the shape of the Modern Warfare between entertainment and internet companies worldwide.

About these ads

About Nerds in Court

John G. Nowakowski, Esq. (LLMT), is a graduate of the University of San Diego School of Law, and is licensed to practice law in California and Nevada. Christina R. Evola, Esq. is a recent graduate of the University of San Diego School of Law where her studies focused on intellectual property, antitrust, and media law. She is a lifelong gamer and avid cosplayer. DISCLAIMER: ‘Nerds in Court’ is for entertainment purposes only. Nothing should be construed as legal advice, or any advice for that matter, and no attorney-client relationship is formed by reading these posts. Do not consider information provided here as a substitute for obtaining legal advice from a qualified, licensed attorney in your state.

Discussion

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: