Megaupload pair jailed for their part in Kim Dotcom’s online empire

Two men with leading roles in Kim Dotcom’s Megaupload empire that caused possibly billions of dollars in losses to copyright holders have been sentenced to prison.

Mathias Ortmann and Bram van der Kolk earlier admitted charges of participating in an organised criminal group, conspiring to cause loss by deception and conspiring to dishonestly obtaining documents.

The pair had been fighting extradition to the United States for a decade, but their guilty pleas mean that will no longer take place.

At the High Court in Auckland on Thursday, Justice Sally Fitzgerald started with prison sentences of 10 years and six months for Ortmann and 10 years for van der Kolk.

READ MORE:
* Kim Dotcom fails in Supreme Court appeal, ordered to pay $2.5k to GCSB
* Week-long battle over Dotcom’s extradition comes to Supreme Court
* Supreme Court rules Kim Dotcom appeal can be heard

Unusually, the sentence has been deferred to August 1. That decision was made on humanitarian grounds. Ortmann has a second child due to be born while van der Kolk’s mother is seriously unwell. The pair must turn up to Mt Eden Prison on that date at 10am to begin their sentence.

She then applied discounts for matters including their early guilty pleas, remorse and their agreement to surrender $10 million in overseas bank accounts as reparation.

She ended by sentencing Ortmann to two years and seven months in prison while van der Kolk will serve two years and six months in prison.

Justice Fitzgerald said while many of the victims were wealthy multi-national film and music recording companies, there were also others effects.

That included a small software company from Timaru. The director of the company found pirated versions of his software available on Megaupload after sales of his software dropped off.

Justice Fitzgerald said the director sent takedown notices to Megaupload but copies of his pirated software remained on the site and he had to take a second job to make ends meet.

Crown lawyer David Boldt said the case dwarfed any other fraud in New Zealand’s history.

While he did not name Dotcom, Boldt said had “the leader” of the organisation been before the court, the Crown would be asking for a starting point of 16 years in prison.

According to court documents released to Stuff, the pair knew Dotcom’s Mega companies were making millions from allowing users to upload and share movies, music, software and pornography on the Megaupload platforms.

While the pair outwardly pretended to enforce copyright by removing links to movies and music, they allowed the files to remain on the servers and even offered repeat offenders incentives to continue their crimes.

The US Department of Justice estimated the Megaupload group caused over $800 million of losses to copyright holders over seven years, since Megaupload’s birth in 2005. Megaupload ceased to exist in 2012.

Boldt said that was a conservative estimate and the true number could be in the billions.

“This was a criminal enterprise since its inception,” Boldt said.

The pair’s lawyer, Grant Illingwoth KC, disputed that figure and said it was not based on evidence.

He said Megaupload was live at a time the internet was “fizzing” with new issues, such as file sharing. He said the pair made “serious mistakes”, they had no idea they would face a criminal prosecution.

Illingworth also urged Justice Fitzgerald to refrain from increasing the sentence to deter others. He said since Megaupload’s demise, companies like Netflix and Spotify offer access to copyrighted material for reasonable subscription prices and the industry had hugely changed.

“The Megaupload shutdown was a lesson to everyone.”

Illingworth asked Justice Fitzgerald to apply discounts of 80 percent, to reflect various aspects including their guilty pleas, remorse, previous clean records and the 11 years they have been on bail.

He said the pair now operate a legitimate business that employed 200 people.

“It is no exaggeration to say their lives have been ruined, and their families damaged by their involvement with Megaupload.”

Court documents show an FBI analysis of a sample of Megaupload files on two servers show at least 90% of the files infringed copyright, 7% were pornographic and may also have infringed copyright. Whether there were also violations on the remainder of the files could not be determined.

Court documents show the US authorities estimate Dotcom made $100 million as CEO of Megaupload Ltd from advertising and user-subscription charges.

The court documents say Dotcom could not have done that without the expert technical assistance of Ortmann and van der Kolk.

“In accordance with Mr Dotcom’s wishes or on their own initiative, they evolved technical solutions that enabled copyright infringement to flourish on the sites,” the summary of facts says.

Ortmann was chief technical officer and oversaw the software programmers. He also oversaw the reward scheme for uploaders.

He also had a 25% share in Megaupload and was estimated to have received over $30 million.

Boldt described him as a “genius” and “one of the most gifted programmers on the planet”.

Van der Kolk was in charge of programming and had a 2.5% share.

Boldt said Megaupload was “clever” and was designed to appear as a legitimate file sharing site, but in the background it knew the site was facilitating copyright infringement.

Four years into the operation, van der Kolk told Ortmann: “If copyright holders would really know how big our business is they would surely try to do something against it… They have no idea that we’re making millions in profit every month.”

Boldt said they knew Megaupload’s growth relied on infringements.

The scale was eye-watering. The court documents show at one time, Megaupload claimed to have 50 million daily users, 180 million registered users – and to have commanded 4% of all internet traffic.

But the vast majority of users had never uploaded a file. Approximately 90% of users were only there to view or download files, most of which were in breach of copyright.

When copyright holders contacted Megaupload – complaining of breaches – the company responded with promises of removing the offending material from the website.

In reality, URLs or links were removed but the files themselves remained, allowing users to locate the illegal files via a different route.

“This deliberate ambiguity, and Megaupload’s overall concealment of its inner workings, gave the impression that infringing content had been removed when it had not,” court documents said.

“It was one of the key mechanisms which enabled Megaupload to disseminate infringing content freely, while falsely maintaining that it operated a robust and effective system to protect the interests of copyright owners.”

The court documents show that over 300,000 complaints were made against one uploader. Despite that, the user’s account was not cancelled.

But instead of punishing those that repeatedly posted infringing content, Megaupload incentivised breaches, paying those who uploaded popular files.

“They knew that, overwhelmingly, the uploaded content they attracted in this manner comprised infringing copies of copyright-protected works,” court documents said.

And the Crown says Ortmann and van der Kolk knew exactly that.

As early as January 2008, van der Kolk sent a message to Ortmann saying: “We are making profit of[f] more than 90% infringing files”. He went on to say it would be counterproductive to disqualify users from receiving payments “because growth is mainly based on infringement”.

Despite the vast profits, US investigators estimate only $3m in rewards was paid out

The group also discussed possible legal action. In 2009 Ortmann suggested to Dotcom a way out. “Promise some kind of technical filtering crap and then never implement it.”

When the pair emerged from court they did not want to comment.

Detective Inspector Stuart Mills said the decade-long case showed the importance New Zealand placed on its “relationships with our international partners”.

“There’s obviously still work to be done to assist our partners, and we’d expect the same from our international partners as well.”

Dotcom was not involved in the case before the New Zealand courts and therefore had no input into the court documents.

A 2022 Supreme Court ruling cleared the path for a decision to be made on whether Kim Dotcom should be extradited to the United States.

A final decision on whether Dotcom will be extradited sits with the Justice Minister Kiri Allan.