Digital Daredevil Behind Megaupload Has a New Venture

AUCKLAND — At 6:48 a.m. Sunday, the Internet tycoon Kim Dotcom opened his new file-storage Web site to the public — one year to the minute after the police raided the mansion he rents in New Zealand.

The raid was part of a coordinated operation with the F.B.I. that also shut down Megaupload, the file-sharing business he had founded.

Mr. Dotcom faces charges in the United States of pirating copyrighted material and money laundering and is awaiting an extradition hearing in New Zealand. But on Sunday, his focus was on the new site, which was already straining under heavy traffic within two hours of its introduction. In the first 14 hours of the site’s operation, more than half a million people registered to use it, Mr. Dotcom said.

“This should not be seen as the mocking of any government or Hollywood,” Mr. Dotcom, 39, said Sunday at a news conference at the Auckland mansion. “This is us being innovators and executing our right to run a business.”

The event marking the introduction of Mega, held at the same property that had been raided by the police, was designed to be a spectacle. As Mr. Dotcom addressed a large crowd of journalists and guests, actors dressed as armed police officers rappelled down the sloping roof of the main house and shouted that all those present would be detained. A helicopter emblazoned with “F.B.I.” hovered overhead.

Mr. Dotcom, a German citizen and permanent resident of New Zealand who was born Kim Schmitz, was arrested Jan. 20, 2012. During the raid on his home that day, the police seized vehicles worth about 6 million New Zealand dollars, or $5 million, and froze about 11 million dollars in bank accounts, according to a news release issued at the time.

Over the past year, Mr. Dotcom has become an ever-prominent figure in New Zealand as the legal and political saga surrounding his case has played out in the public sphere.

In June, a High Court judge ruled that the police had used the wrong type of search warrants to enter Mr. Dotcom’s property, meaning that the raid had been illegal. In September, Prime Minister John Key of New Zealand apologized to Mr. Dotcom after it was disclosed that the country’s intelligence agency had acted illegally by spying on him, even though he holds a permanent resident’s visa.

Mega, Mr. Dotcom’s new Web site, is a file-storage and sharing system that encrypts files on one’s computer before they are uploaded to the site’s servers. Files can then be downloaded and decrypted. This means that files on Mega’s servers cannot be read by anyone, including by the company itself, without the user’s decryption key.

The allegation that Mr. Dotcom’s previous venture, Megaupload, knew its users were illegally uploading copyrighted material — and indeed sought to encourage the practice — is a crucial part of the U.S. Department of Justice’s indictment against the site and those who operated it.

In contrast, the new site appears to distance Mega intentionally from any legal responsibility for the content on its servers, although the terms and conditions of the site do explicitly forbid uploading copyrighted material.

“What he’s trying to do is give himself a second-string argument,” Charles Alexander, a lawyer in Sydney who specializes in intellectual property law, told The Associated Press. “‘Even if I was wrong before, this one’s all right because how can I control something if I don’t know that it’s there?”’ he imagined the new company thinking. “I can understand the argument; whether it would be successful or not is another matter.”

U.S. prosecutors declined to comment on the new site, The A.P. reported, referring only to a court document that cites promises Mr. Dotcom made while seeking bail, including one that he would not start a Megaupload-style business until the criminal case was resolved.

“Legally it’s probably the most scrutinized Internet start-up in history,” Mr. Dotcom said. “Every pixel on the site has been checked for, you know, all kinds of illegal — potential legal challenges. We have a great team of very talented lawyers that are experts in intellectual property and Internet law, and they have worked together with us to create Mega.”

The Motion Picture Association of America, which has filed complaints about alleged copyright infringement by Megaupload, told The A.P. that it was skeptical that Mr. Dotcom’s new site was harmless. “We are still reviewing how this new project will operate, but we do know that Kim Dotcom has built his career and his fortune on stealing creative works,” it said in a news release.

The Mega site offers 50 gigabytes of storage free; additional storage and bandwidth can be purchased at three tiers of monthly fees.

Megaupload Founder Goes From Arrest to Cult Hero

He asked whether “you guys just drive around in modified electric vehicles and pose for photos,” referring to an image Mr. Dotcom, 38, had just posted showing three of his associates with golf buggies and a Segway. “I could live like that,” Mr. Gracewood wrote.

Twenty minutes later he got a surprising response: “Come over now!” So he took a friend and went to the most expensive house in the country — a mansion worth 30 million New Zealand dollars, or $24 million, rented by Mr. Dotcom, a German citizen — for a swim and some cupcakes. Twitter users across New Zealand watched with fascination as the group posted updates and photos of the visit.

That evening, which was followed on Twitter under #swimatkims , was just the latest in a series of at times bizarre developments in a case that has turned Mr. Dotcom into something of a cult hero since his arrest.

In January, two police helicopters landed on his lawn to raid the property just north of Auckland. At that time, most of the country had never heard of Mr. Dotcom, despite his flamboyance and wealth. He had kept a low profile in the two years he had been living in this country of about 4.4 million people.

The police operation — carried out under New Zealand’s extradition treaty with the United States — seemed designed to attract attention. It was accompanied by uncharacteristically detailed news releases describing the operation, including how officers had cut their way into a panic room to arrest Mr. Dotcom, who, they said, was found sitting near a shotgun.

Mr. Dotcom — born Kim Schmitz and also known as Kimble and Kim Tim Jim Vestor — and three others connected with Megaupload were arrested in connection with U.S. indictments on charges involving copyright infringement and money laundering. At the time, the U.S. Department of Justice said that in all, seven people had been arrested around the world in connection with an investigation into online piracy of numerous copyrighted works, including music and films.

The Justice Department said the individuals and two companies — Megaupload and Vestor — had been charged with “engaging in a racketeering conspiracy, conspiring to commit copyright infringement, conspiring to commit money laundering and two substantive counts of criminal copyright infringement.”

This month, Mr. Dotcom’s U.S. lawyers are set to appear before a Virginia judge in a bid to have the criminal case against the company dismissed. According to a document on his lawyers’ Web site, they will argue, among other points, that the indictments are invalid because they must be submitted to a company’s U.S. office, which Megaupload has never had.

Even if it is successful, the case against Mr. Dotcom and the other defendants would proceed.

The four men arrested in New Zealand are still free on bail, awaiting an extradition hearing, which is scheduled to begin Aug. 6.

Mr. Dotcom has had other brushes with the law. He was convicted of insider trading in Germany in 2002 in what was at the time the largest such case.

Among the items seized by the police in the January raids were 18 luxury vehicles worth 6 million dollars — including a Rolls Royce Phantom Drophead Coupe and a 1959 pink Cadillac — computers and as much as 11 million dollars in cash.

Mr. Dotcom said in an e-mail interview that he had been treated badly by the New Zealand police and the government, which he said he believed was simply kowtowing to U.S. requests.

“Two helicopters and 76 heavily armed officers to arrest a man alleged of copyright crimes — think about that,” he wrote. “Hollywood is importing their movie scripts into the real world and sends armed forces to protect their outdated business model.”

In February, the New Zealand police defended the operation, saying it had been in line with a risk assessment and there had been only “20 or 30” officers involved in the raid on the mansion.

After a month of prison, Mr. Dotcom was eventually granted bail, despite prosecutors’ arguments that he was a serious flight risk. Over the following months his lawyers won a series of hearings to loosen the bail conditions and free up some of his confiscated cash to cover expenses.

The biggest victory came last Thursday, when a High Court judge ruled the New Zealand police had used the wrong type of search warrant, so the entire raid had been illegal. Mr. Dotcom’s lawyers are due back in the Auckland High Court on Wednesday, seeking the return of seized assets and data.

Gavin Ellis, a senior political studies lecturer at the University of Auckland, said that over time the public had become less supportive of the police operation.

This article has been revised to reflect the following correction:

Correction: July 3, 2012

An earlier version of this article gave an incorrect value for the house that Kim Dotcom rents in New Zealand. It is $24 million, not $30.7 million.