Three months before federal authorities shuttered Megaupload and indicted its top seven executives, the file-sharing site’s founder, Kim Dotcom, urged PayPal not to do business with rival sites because of their "criminal activity," according to a 200-page document Virginia federal prosecutors unveiled today.

If true, the revelation, one of countless the authorities noted in their filing, adds a touch of irony to a long-stalled criminal prosecution of what U.S. authorities have said is "among the largest criminal copyright cases ever brought by the United States."

The October 2011 e-mail from Dotcom to PayPal, the text of which was released today, came as Megaupload terminated a rewards program that provided monetary incentives to some of its 66 million users to upload content.

Our legal team in the US is currently preparing to sue some of our competitors and expose their criminal activity. We like to give you a heads up and advice [sic] you not to work with sites that are known to pay uploaders for pirated content. They are damaging the image and the existence of the file hosting industry (see whats happening with the Protect IP act). Look at Fileserve.com, Videobb.com, Filesonic.com, Wupload.com, Uploadstation.com. These sites pay everyone (no matter if the files are pirated or not) and have NO repeat infringer policy. And they are using PAYPAL to pay infringers.

It’s not the first time Dotcom, who is in New Zealand fighting extradition charges to the United States, has undermined his rivals.

Eighteen months before Megaupload’s operators were indicted in January 2012, the company complied with a secret U.S. search warrant targeting five of its users, who were running their own file-sharing service using Megaupload’s infrastructure, according to interviews and court documents.

The June 24, 2010 warrant to search the Megaupload servers in Virginia (.pdf) was part of a U.S. criminal investigation into NinjaVideo, which was piggy-backing on Megaupload’s "Megavideo" streaming service. Though the feds had already begun quietly investigating Megaupload months before, in this case the government treated Megaupload as NinjaVideo’s internet service provider, serving Megaupload with the warrant and asking them to keep it quiet.

Megaupload kept the warrant a secret and turned over information on the alleged NinjaVideo operators, as well as database information on the 39 pirated movies detailed in the warrant. The NinjaVideo probe led to the indictment of the five top NinjaVideo administrators, including founder Hana Beshara, on charges similar to those now faced by Dotcom and other Megaupload operators.

In today’s filing, the government blasted Dotcom’s e-mail to PayPal:

In direct contrast to DOTCOM’s statements in his e-mail, for over six years as part of the "Uploader Rewards" program, the Mega Conspiracy paid users who had uploaded "pirated" content, and as demonstrated in the sections entitled Willful Failure to Remove Copyright-Infringing Files and Misrepresentations to Copyright Owners, the Mega Conspiracy failed to terminate repeat infringers.

Megaupload says it's innocent of the federal criminal copyright charges, was acting as an internet service provider and is immune to its customers' activities under the Digital Millennium Copyright Act. The government claims Megaupload does not enjoy the so-called DMCA "safe harbor" protection because it accuses Megaupload of failing to remove content at the request of rightsholders, an accusation and others that Megaupload disputes.

The government, in today’s filing, counters:

"The preliminary analysis of the database for Megavideo.com further reflects approximately 34.9 billion video streams, or views, of all files. Of these, at least approximately 15 billion streams, or roughly 43%, are of unique video files that had received at least one copyright take-down request."

An extradition hearing for Dotcom is tentatively set for next summer. Dotcom is free in New Zealand, awaiting the hearing and challenging the charges against him and six of his colleagues.

The government's indictment said the site facilitated copyright infringement of movies "often before their theatrical release, music, television programs, electronic books, and business and entertainment software on a massive scale." The government said Megaupload’s "estimated harm" to copyright holders was "well in excess of $500 million."

In addition to the indictment in the Eastern District of Virginia, the Justice Department seized 18 domains connected to Megaupload. The agency said it executed more than 20 search warrants in the United States and eight countries, seizing $50 million in assets.