The Megaupload coders who pleaded guilty in a deal in which they promised to testify against Kim Dotcom were sentenced to prison at the High Court in Auckland today.
Justice Sally Fitzgerald told Mathias Ortmann he was sentenced to a sentence of two years and seven months in prison while Bram van der Kolk would serve two years and six months.
The sentences were handed down after substantial discounts for guilty pleas, assistance to the FBI and rehabilitation efforts - significantly down from around 10 years.
The prison sentence was briefly deferred to allow Ortmann to be present for the birth of his second child and for van der Kolk to spend time with his seriously ill mother who was currently in New Zealand.
The Crown consented to the delay until August 1.
For van der Kolk and Ortmann, the sentencing comes 11 years after they were arrested in a global FBI operation intended to take down Megaupload, which attracted 4 per cent of the world’s internet traffic drawn by easy access to copyrighted films, music, television shows and video games.
The FBI had sought to extradite those arrested in 2012 - company chief executive and primary shareholder Kim Dotcom, marketing director Finn Batato, Ortmann and van der Kolk.
After 10 years of legal battles, the Supreme Court ruled they were liable for extradition and the decision on signing the extradition warrant was passed to - and currently sits with - Justice Minister Kiri Allan.
Then Ortmann and van der Kolk struck a deal in which they pleaded guilty and would be sentenced and serve their time in New Zealand.
Dotcom alone remains the target of extradition in New Zealand after Batato died of cancer a year ago.
Detective Inspector Stuart Mills, the manager of intercept and technology operations for the National Criminal Investigation Group, said the scale of offending was enormous.
”Megaupload was a global criminal enterprise estimated to have cost copyright holders more than half a billion dollars.
“As one of the largest copyright fraud schemes ever seen, Megaupload operations involved the deliberate and systematic infringement of copyrighted material for financial gain. It exploited the work of artists, programmers, and entrepreneurs as well as the organisations and corporations that represented them.”
There was a packed public gallery that included family and friends of the men facing sentencing.
Fitzgerald found a starting point of 10 years and six months for Ortmann and 10 years for van der Kolk. She then applied discounts for early guilty pleas and the assistance that had been offered and promised to the FBI.
That assistance extended to offering to testify against others charged in the Megaupload case including Kim Dotcom, she said.
It was that calculation that led to the final sentence.
Fitzgerald described the operation of Megaupload as an operation led by Dotcom in which the pair had key roles attracting uploads of copyright-infringing material and users who would pay subscriptions to view it.
She also described the ways in which Megaupload deflected takedown requests from copyright owners.
In describing Dotcom’s role in Megaupload, she said she was taking the description from the police summary to which they had pleaded guilty.
It meant that what she had to say about Dotcom’s role was based on their testimony.
“It is perhaps obvious that Mr Dotcom has not agreed to the summary of facts because he is not party to this proceedings.”
On the information the court had heard, she said Dotcom was responsible for policy and direction but lacked the technical ability to run the website.
Ortmann was the chief technology officer and had hands-on leadership roles. He earned $19m through the site and held 25 per cent of Megaupload’s shares.
Van der Kolk overlooked software programming and the rewards scheme that was fundamental to its income stream. He held 2.5 per cent in shares and earned $3m.
Fitzgerald said file sharing was a new development at the time Megaupload started. She said the vast majority of Megaupload’s traffic was copyrighted material from which both men had admitted they intended to get significant amounts of money.
There was an estimate of $500m in losses although Fitzgerald said both those appearing for sentence and the Crown accepted the exact amount lost to copyright holders would be impossible to quantify.
Fitzgerald said she had received victim impact statements from parties as diverse as a Timaru software developer to the industry body representing five big Hollywood studios.
“The fact that many of the victims are multinational corporations does not undermine their rights as a victim.”
There was also testimony from the Recording Industry Association of America which said its members lost $5.3bn in the years that Megaupload was operating.
Those copyright holders detailed sending huge numbers of takedown notices to Megaupload during its operation without any noticeable decrease in copyright infringement.
The Timaru software developer’s statement said he noticed a downturn in software sales in 2009 and sent repeated takedown notices to Megaupload in a bid to stop it being distributed there. He said it was “a waste of his time” doing so as the software remained available there.
Fitzgerald said the Timaru software developer’s income dropped to the point where he could no longer make a living through that alone and had to take other jobs.
Fitzgerald said both men admitted copyright had been “breached on a mass scale” and “significant harm was done by Megaupload’s activities”.
Fitzgerald laid out the background to which the men had testified - the launch of Megaupload in 2005 with the intent of emulating another file-sharing website called Rapidshare.
Fitzgerald said the offences to which the men had pleaded were fraud and inherently based on dishonesty and deception. She said there was a deliberate attempt to disguise the copyright infringement taking place.
She said the victims were not only large corporate entities, as shown by the Timaru software developer.
She said “financial gain was at the heart of this” although there was evidence of excitement in working on the cutting edge of technology. Even so, she said evidence showed they knew what they were doing was wrong.
Fitzgerald said the pair would receive a “modest discount” for reparation which included the surrender of around $10m held in offshore accounts.
In the course of submissions to the court, wildly differing outcomes were sought by van der Kolk and Ortmann’s lawyer, Grant Illingworth QC, and the Crown’s prosecutor David Boldt.
Illingworth said there were strong reasons to choose a sentence of home detention including the remorse shown and rehabilitative steps taken by the men.
“To apply a heavily punitive penalty would send the wrong message. Others should be encouraged to follow the example they have set over the last decade of their lives.”
Illingworth presented his clients as a pair who had made a poor decision to become involved in Megaupload when it launched in 2005 and who had worked to make good on the error since their arrest in 2012.
He said their remorse and rehabilitation could be seen in their new business Mega, a cloud storage business they created out of code in the year after their arrest and which they continued to lead.
Illingworth said the pair had “worked tirelessly” to establish Mega as a business that was fully compliant with the law and a “good corporate citizen” with 200 employees and more than 280 million users.
He said it had the potential to compete with some of the world’s biggest tech companies, that both coders played a vital role in the business and a prolonged absence could create a period of jeopardy for the company and those employed there.
Boldt - for the Crown - said van der Kolk and Ortmann were central to the operation of the copyright-infringing organised crime group that launched as Megaupload in 2005, masquerading as a genuine business.
He said the worldwide reach of the criminal conspiracy, the money it made, the losses it caused and how long it went on “puts this in the category of the most serious conspiracy … it is possible to imagine.
“This fraud dwarfs anything seen in New Zealand before. Even the illicit revenues Megaupload generated amounted to around $300m.”