MegaUpload, one of the largest file-sharing sites on the Internet, has been shut down by federal prosecutors in Virginia. The site’s founder Kim Dotcom and three others were arrested by the police in New Zealand at the request of US authorities. MegaVideo, the streaming site belonging to same company, and a total of 18 domains connected to the Mega company were seized and datacenters in three countries raided.

Just a few weeks ago, MegaUpload founder Kim Dotcom told us that his Mega ventures have nothing to worry about, as they operate within the rules of the law.

“Mega has nothing to fear. Our business is legitimate and protected by the DMCA and similar laws around the world. We work with the best lawyers and play by the rules.

“We take our legal obligations seriously. Mega’s war chest is full and we have strong supporters backing us,” Dotcom said.

But behind the scenes powerful forces were at work, plotting the forceful demise of MegaUpload, one of the world’s biggest websites.

An indictment unsealed today by the Department of Justice claims that MegaUpload has caused the entertainment industries more than $500 million in lost revenue and generated $175 million “in criminal proceeds.”

Two corporations – Megaupload Limited and Vestor Limited – were indicted by a grand jury in the Eastern District of Virginia on January 5th, 2012, and 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.”

Today, the authorities executed in excess of 20 search warrants in the United States and eight other countries.

Data centers in the Netherlands, Canada and Washington housing MegaUpload’s equipment were raided. In an apparent reference to the latter location, a source has just informed us that the FBI are currently detaining everyone at the ISP Cogent Communications’ headquarters in Washington DC, in connection with a Mega-related search warrant.

In addition to MegaUpload founder Kim Dotcom who was arrested today in New Zealand, another six alleged members of the Mega “conspiracy” were charged in the indictment:

- Finn Batato, 38, Mega’s chief marketing officer and a citizen and resident of Germany
- Julius Bencko, 35, Mega’s graphic designer from Slovakia
- Sven Echternach, 39,Mega’s German head of business development;
- Mathias Ortmann, 40, the German CTO, co-founder and director of Mega
- Andrus Nomm, 32, programmer and head of the development from Estonia
- Bram van der Kolk, 29, a Dutch citizen who oversaw programming and network issues.

Dotcom, Batato, Ortmann and van der Kolk were arrested today in Auckland, New Zealand, by authorities there. Bencko, Echternach and Nomm are still at large.

The authorities seized approximately $50 million in assets, which appears to include Kim Dotcom’s treasured collection of several dozen cars, as detailed below.

A total of 18 Mega-related domains were also seized by authorities including Megastuff.co, Megaworld.com, Megaclicks.co, Megastuff.info, Megaclicks.org, Megaworld.mobi, Megastuff.org, Megaclick.us, Mageclick.com, HDmegaporn.com, Megavkdeo.com, Megaupload.com, Megaupload.org, Megarotic.com, Megaclick.com, Megavideo.com, Megavideoclips.com and Megaporn.com.

According to the Department of Justice, the individuals named in the indictment face a maximum penalty of 20 years in prison on the charge of conspiracy to commit racketeering, five years in prison on the charge of conspiracy to commit copyright infringement, 20 years in prison on the charge of conspiracy to commit money laundering and five years in prison on each of the substantive charges of criminal copyright infringement.

The legal action against Mega will set a precedent for similar cloud-hosting services. The MegaUpload site itself had no search function to discover content directly, but according to the indictment this was done to “conceal the scope of its infringement.” Would the same be true for services such as Dropbox?