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U.S.-backed prosecution fumbles, is accused of lies; Judge rules Dotcom is a free man while he awaits extradition hearing in Feb.

Kim Dotcom, unlikely antihero of the filesharing movement, is a free man for now.  That's the outcome after Dotcom emerged wholly victorious from a hearing which ruled on whether Dotcom was a dire flight risk and whether he violated terms of a probationary deal he made to get out of prison back in 2012.  

I. The Trials and Tribulations of an Entrepeneur on the Internet's Fringe

Prosecutors in New Zealand (commonly referred to as "The Crown", terminology tracing back to the days of British rule) tried desparately to convince a local judge to sentence Kim Dotocom to prison for the next year.   But after three days of hearings at the Auckland District Court, Judge Nevin Dawson ruled decisively in Mr. Dotcom's favor, saying he was not a serious flight risk and that prosecutors' evidence was insufficient to prove that Mr. Dotcom had violated his bail.

This ruling was the latest in a series of legal battles over Dotcom and charges he faces in the U.S.

Born in Germany and holding Finnish citizenship as well, via his parent Kim Dotcom (born: Kim Schmitz) toyed with cybercrime in his younger years, having several run ins with the law.  In his 20s he appeared to reform and become a reputable internet businessman.  But he would come to face a series of insider trading accusations, which followed him for much of the last decade.  He spent most of 2001 to 2009 in Hong Kong, China, in exile from his home nation of Germany due to the claims.

Kim Dotcom
Kim Dotcom in 1996 [Image Source: Wikipedia]

Germany never pushed hard to extradite Dotcom, in part because the laws he allegedly violated had been changed at least twice during the time he executed the trades in question.  Dotcom's last trade was in 2001, at which point prosecutors still had to prove criminal intent in cases of insider trading.  Long story short, Dotcom was in Hong Kong partially for legal reasons, but it was unclear whether he would even be convicted if he returned back home (he just didn't want to find out).

In 2005 Kim Dotcom launched Megaupload, an early cloud storage site, which would make him an international sensation.  For a time Dotcom courted the corporate media industry and sought to assuage their claims.  But keeping copyright compaints at bay was difficult, in part, due to his site's controversial business model which rewarded users who had many downloads with more storage.  Dotcom claimed this was just good business, but copyright watchdogs complained it was rewarding piracy.

Megaupload

 At its peak in late 2011 Megaupload accounted for 4 percent of the world's internet traffic and was the 13th most visited web service.  That volume of traffic helped propel Dotcom's holding company to annual revenues of $175M USD.

But Dotcom's joyful payday was short lived.  In Jan. 2012 U.S. prosecutors charged Dotcom with internet piracy charges, and then with a host of other charges such as racketeering and money laundering, which related to the fact that he was spending money which prosecutors claimed was made via piracy.  

Kim Dotcom -- the raid
Authorities raided Kim Dotcom's mansion estate, committing multiple violations of legal procedure which would be admonished in later judicial rulings.

Two weeks after the U.S. charges Mr. Dotcom's home was raided and he was thrown in prison.

II. Little Victories, Some Losses Too

After spending more than a month in prison, Dotcom convinced a local judge to release him on bail, but his situation was still dire.  Megaupload was shut down and his international bank accounts, which totalled roughly $175M USD, had been frozen by U.S. law enforcement.

In June 2012 Dotcom finally saw a small victory, winning back much of his property seized in the raid, including his home and cars.  Over the next year he also convinced authorities to give him access to some of his bank accounts in order to finance his legal defense.  New Zealand judges were critical of the raid on Mr. Dotcom's residence, saying it was unacceptably broad and that items were seized that had nothing to do with the case.

Kim Dotcom
Kim Dotcom's wife Mona, whom he shares five children with, filed for divorce in May amidst the financial and public stress from the case. [Image Source: Getty Images]

So far his biggest victory came due to an error local police made during the raid.  Dotcom's lawyers showed that police used the wrong form when seizing hard drives and computers from his home.  Further, a Judge ruled that it was not lawful for the local police to have shared the digital evidence with the U.S. Federal Bureau of Investigation (FBI) without an extradition order.

As a result the prosecution's case has crumbled as they were forced to return much of their digital evidence to Mr. Dotcom and destroy the digital copies they had collected.  They will not be able to use this evidence in the prosecution.

Dotcom hasn't exactly escaped unscathed, either, though.  The internet entrepeneur has five young children, and the months of imprisonment and court trials have made it difficult for him to spend time with them.  And in May 2014 Dotcom's wife, Mona, filed for divorce.

III. FBI No Shows at Bail Hearing, Prosecutors' Weak Arguments for Imprisonment Collapse

Prosecutors were unsympathetic about the personal fallout Dotcom has suffered over the last two years. They claimed in court last month that evidence from a wiretap placed by FBI Special Agent Rodney Hays proved that Dotcom "indirectly associated" with Julius Bencko, a former Megaupload developer who is listed in the U.S. indictment.  That vague claim was weakened, in part, because Agent Hays did not show up during the hearings and the prosecution struggled to prove that Dotcom had actually spken to Bencko, an action which likely would violate the terms of his probation.

Auckland District Court
The FBI no-showed at the Auckland District Court. Dotcom's lawyers claimed agents involved in the case lied multiple times under oath regarding details of the case. [Image Source: TransportBlog.nz]

With that line drying up, prosecution resorted to a more hodgepodge argument claiming that a number of factors made Dotcom a flight risk and that he should be imprisoned for months until next year's extradition hearing in February 2015.  Among the things they claimed made him a flight risk were:
  • The fact that much of his legal team quit in recent weaks amid Dotcom's ailing finances.
     
  • The suggestion that he might have money hidden away.
These arguments weren't particularly compelling either and ultimately Judge Dawson ruled that Kim Dotcom would remain a free man until the extradition hearing.  He did put some conditions on that release, ordering that Dotcom must increase the frequency of his weekly visits to the police station (to prove where he is).  He also forbid Dotcom from traveling by air or sea using private aircraft, ruling that if he travels locally he must used public transportation, which is monitored by New Zealand authorities.

Kim Dotcom
Kim Dotcom was adamant that authorities were bullying him and trying to keep him from seeing his kids.  A judge sided with Dotcom, ruling that he should remain free for now. [Image Source: Fairfax NZ]

Ultimately these conditions do what the prosecution claims it wanted -- to make it very difficult for Dotcom to plot and escape prior to the extradition hearing.  But prosecutors didn't seem overly happy as it was obvious their true objective was imprisoning Dotcom.

IV. Dotcom Speaks Out Over "Harassment and Bullying"

Dotcom cheered the outcome but he was not without complains of his own.  In a statement to reporters he remarked:

The Court has found that I've not breached any of my bail conditions.  I have been probably the most compliant and exemplary candidate and I am surprised, even though I'm going home right now, that my bail conditions have been tightened.  I think this is another example of harassment and bullying by the United States government in concert with the New Zealand government..

I think this whole application was only made because my lawyers decided to resign because of lack of funds on my part because Hollywood has seized the new family assets that have been earned after the raid. So the Crown and the U.S. government have used this opportunity in a weak moment to make up the bogus case for me having breached my bail conditions.

I invite every member of the media to have a look at the Court file and see how an FBI agent lied in his declarations that I have attempted to sell a car, that I have attempted to get a refund for forfeitable assets, and that I have breached my bail conditions by being directly or indirectly in contact with one of my co-defendants.

All these things have been proven to be wrong, and lies, and I invite everyone to have a look at this to understand the tactics of the U.S. government and to understand that the U.S. government can not be treated with candor and good faith in this case.  The same thing that I've experienced in this bail hearing I’ve also experienced with the indictment, which is just as flawed and wrong and misleading and malicious as this bail proceeding was.

I am now going home to play with my kids.

Dotcom appeared to insinuate that U.S. and NZ prosecutors timed the bail hearing to pray on his marital and financial struggles in recent months.

V. What Awaits

Looking ahead at the end game, Dotcom still has some serious problems facing him.  He's supposedly running short on money to fund his defense, thanks to a mixture (by his own admission in court) of his lavish lifestyle and his massive legal fees to date.  That shortfall could come at a crucial time as after to several delays, February's extradition hearing may finally be held on time.

Extradition is the pivotal battle.  If Dotcom can convince a New Zealand judge that there is insufficient evidence to extradite him to the U.S. to await trial on copyright infringement and money crimes charges, than the U.S. effort will essentially be dead for good.  If he's extradited to the U.S., though, a prosecution is virtually guaranteed, even in light of the FBI being forced to destroy much of its evidence in the case under New Zealand court orders.

Kim Dotcom
Extradition will be the final battle for Dotcom. [Image Source: The New Yorker]

The growing popularity of Megaupload's successor, the heavily encrypted service "Mega" should help on that front as its usage and revenue have soared in the last year.  While Mega operates nearly identically to Megaupload, it has a unique feature that virtually precludes prosecution over file sharing.  All files upload with the service are strongly encrypted on the client side, preventing Mega from viewing the file contents.  Users hold the keys and can share with each other by sharing the file link and the key to decrypt it.

As Mega has no way of seeing the file contents, it would be difficult to accuse it of willfully facilitating copyright infringement.  In that regard it's somewhat like the low tech bank lock-box -- a storage spot often used in criminal activity.  While the bank offers access to the lock box, it is unlikely to be charged if the lockbox is involved in a crime, as it gives the users the keys and is unaware of the contents.
Mega click

Mega has grown to have 15 million registered users, many with premium paid accounts, according to a recent video blog by Dotcom.  Dotcom must now circle the wagons and rebuild his legal team, as he awaits February's hearing, which will ultimately determine whether he remains free and is able to care for his young children.

Source: TorrentFreak





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