Updated: Day After Piracy Bill Collapses, Feds Shut Down Megaupload

Book theft/ Book piracy

The FBI today unsealed an indictment that charges file-sharing site Megaupload and its executives with a list of criminal charges, including conspiracy to commit racketeering and money laundering.

The news comes a day after the proposed anti-piracy law called SOPA fell apart, and may be an effort by the White House to soothe frustrated Hollywood donors who have warned the bill’s failure could lead them to withhold election dollars. (This story is updated to describe retaliatory hacking attacks by Anonymous)

In a press release, the FBI announced federal prosecutors in Virginia are laying charges against Megaupload, its founder and a gallery of international conspirators located in New Zealand, Germany and other countries.

The government describes Megaupload as a massive criminal operation in which the main website acted as a conduit to other sites where pirated content — including books, movies and music — was easily available. The indictment says the alleged conspirators made money from selling premium membership and from ads on the site.

The FBI says the defendants made $175 million in illegal profits and cost copyright owners half a billion dollars. Although there is widespread piracy online, the source of the FBI’s figures is unclear as dollar amounts related to piracy are typically supplied by industry and can be unreliable.

In carrying out the arrests, the FBI worked with law enforcement agencies in at least eight other countries. The action also involved the seizure of servers in the US, Canada and Holland. The value of the seized servers and other others assets is allegedly worth $50 million.

The ringleader of the enterprise is a Hong Kong/New Zealand national with the unusual name of Kim Dotcom.

Megaupload has been a thorn in the side of the entertainment industry for years. Last month, it sued Universal for taking down a YouTube (NSDQ: GOOG) clip that showed celebrities like Kanye West appearing to endorse the site (it’s unclear if the endorsements were bona fide). The megaupload executives now face decades in jail for a variety of charges.

The FBI’s decision to announced the charges today, weeks after a grand jury indicted the defendants, may have political overtunes. The annoucement comes at a time when Hollywood is furious at Washington for backing away from proposed legislation called the Stop Online Privacy Act, and has threatened to withhold campaign donations. The law would have given content owners new powers to take down foreign websites.

Today’s enforcement action suggests that rights owners and the federal government already have extensive powers to target foreign websites. The prosecution is part of the Justice Department’s Task Force on Intellectual Property, a body that is coordinating enforcement efforts and has already removed zapped hundreds of websites for selling counterfeit products.

On Thursday afternoon, the Megaupload website was down.

Update: The online activist group Anonymous appears to have unleashed a series of retaliatory hacking attacks. Late on Thursday afternoon, the websites Justice Department’s and the Recording Industry of America appear to have been knocked off-line.

The Twitter account for Anonymous this afternoon published a series of menacing messages such as “Let’s just say, for #SOPA supporters their #SOPAblackout is today.”

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