3News in New Zealand

The FBI has busted the alleged operators of Internet locker service MegaUpload, which had become one of the most popular video destinations on the Web, according to a statement from the U.S. Justice Department and FBI.

Seven people have been named in an indictment and four suspects have been taken into custody, according to the statement today. They have been charged in Virginia with crimes related to online piracy, including racketeering conspiracy, conspiring to commit copyright infringement, and conspiring to commit money laundering.

The suspects face a maximum penalty of 20 years in prison, the government said.

According to the statement, the indictment alleges that MegaUpload is led by Kim DotCom, aka Kim Schmitz, a German with a colorful history who was once convicted of a felony but who has repeatedly denied engaging in piracy.

DotCom and three others were arrested today in Auckland, New Zealand, by New Zealand police, "who executed provisional arrest warrants requested by the United States," the Justice Department said. The Wall Street Journal first reported on the arrest.

Authorities say that DotCom founded MegaUpload and is the director and sole shareholder of Vestor Limited, which has been used to hold his ownership interests in the Mega-affiliated sites.

"This action is among the largest criminal copyright cases ever brought by the United States," the statement said. The action "directly targets the misuse of a public content storage and distribution site to commit and facilitate intellectual property crime."

In August, CNET profiled DotCom, a free-wheeling former street racer and computer hacker, after he was sued by a porn studio for copyright violations. At about the same time, film industry sources told me that the Motion Picture Association of America (MPAA) had complained to law enforcement officials numerous times that MegaUpload was getting rich by helping millions of people store and distribute pirated films and TV shows.

DotCom allegedly rents cyberlockers to the masses, and nobody disputes that many millions of people from across the globe use them to store and access unauthorized copies of TV shows, feature films, songs, porn, and software. The question is whether DotCom and the other suspects can be held responsible for the piracy.

Some of the services DotCom is said to operate are MegaPorn, MegaVideo, MegaLive, and MegaPix.

If you're wondering if the Obama administration didn't go after MegaUpload as a way to placate the film industry in the wake of White House criticism of the Stop Online Piracy Act, I can only tell you that my sources said the feds began looking at the service months ago.

Nonetheless, the timing of the arrests is kind of curious, considering the indictment had been around for two weeks.

The arrests occurred with many in the entertainment and media sectors feeling betrayed by Obama. According to a story in Deadline.com, some studio chiefs are planning to cut off donations to Obama's re-election campaign after he failed to support antipiracy legislation in the U.S. House of Representatives (the Stop Online Piracy Act) and Senate (the Protect IP Act).

That's bound to hurt as Hollywood has long been a rich area for Democrats seeking campaign contributions.

Obama has said for years he supports stronger antipiracy laws, but on Saturday issued statements that were critical of the bills, which are heavily supported by a large number of copyright owners.

The laws would make it easier for authorities to cut off access in the United States to foreign-based sites accused of piracy, which essentially describes MegaUpload's situation.

That leads us to the big question I'm trying to get answered: if the feds can have an accused pirate arrested and brought to this country for trial, why do we need SOPA and PIPA? I'll update as soon as I get that answered.

Update 2:05 p.m. PT No sooner had I posed that question than Sen. Patrick Leahy (D-Vermont), the man who drafted PIPA, released a statement:

Today's action by the Department of Justice against the leaders of MegaUpload.com shows what law enforcement can do to protect American intellectual property that is stolen through domestic websites.

Domestic?

DotCom was arrested in New Zealand and is a German national. His servers have long been rumored to be in Hong Kong. According to Leahy's office, MegaUpload's servers are located in Virginia. Apparently that gives U.S. officials jurisdiction.

This thing is just starting and DotCom is known for his publicity stunts and tweaking the noses of law enforcement all over the world. We're sure to hear more about this.