Tuesday, July 17, 2012

Kim Dotcom’s Pretrial Legal Funds Would Be Safe With Bitcoin

By Jon Matonis
Thursday, July 12, 2012


The Megaupload case may end up having a chilling effect on pretrial asset seizure. Yesterday Kim "Dotcom" Schmitz, founder of Megaupload, asked his Twitter followers for some better payment alternatives to credit cards and PayPal. The responses suggesting bitcoin came pouring in.

It's easy to see why he asked in the first place. After successfully launching Megaupload, Kim Dotcom's business enterprise was shut down by the FBI and his funds frozen over alleged copyright infringement, money laundering, and conspiracy. Also, PayPal has recently taken a stricter stance on file-hosting services due to piracy concerns. Kim Dotcom is launching a new online business, Megabox, in four to six months and he probably doesn't want to bother with the likes of PayPal.

However, there are two unique aspects of the bitcoin cryptocurrency for Kim Dotcom to consider -- an online payment method for customers and a reliable storage facility for his company's monetary assets.

On the first count, bitcoin could replace PayPal and credit cards which would increase the transactional privacy of his many loyal customers as well as dramatically reduce the processing fees that his company has undoubtedly been forking over to PayPal and credit card processors. At its peak, Megaupload served about 180 million users.

Now, since his extradition hearing has been delayed until 2013, Kim Dotcom has made the extraordinary offer to go to the United States voluntarily if he and his colleagues receive a fair trial and the unfreezing of his funds to pay legal bills and pretrial living expenses. The U.S. Department of Justice has already seized $67 million. With 22 lawyers working on the case in different countries, Kim Dotcom tells the New Zealand Herald, "I have accumulated millions of dollars in legal bills and I haven't been able to pay a single cent. They just want to hang me out to dry and wait until there is no support left."

This is where bitcoin, on the second count, would prove even more useful as funds retained on the distributed bitcoin block chain cannot be seized in any jurisdiction. As the holder of the private key, you and only you control access and dispensation of the bitcoin value. A distribution mechanism could be set up for Kim Dotcom to transfer a certain amount of bitcoin to a third party that would handle the payment of his legal fees in various national currencies. Or, his legal team could even accept bitcoin directly as payment for legal services rendered. If he establishes a brainwallet, he could even authorize the transfer from prison.

In a Skype interview with The Hollywood Reporter, Dotcom said, "My home was raided by 72 heavily armed police arriving in helicopters. This was an Osama bin Laden-style operation on an alleged copyright infringer. I guess it's pure luck that my family wasn't terminated by a Predator drone." Dotcom also believes that "dirty delay tactics instead of evidence" are being deployed by the U.S. Government and that "the [delaying] actions clearly demonstrate that they don't have a case and that this ... was about killing Megaupload and creating a chilling effect to freeze the whole file-hosting sector."

Ruling on June 29th, U.S. District Court Judge Liam O'Grady ordered that defendants could argue for a motion to dismiss the allegations against the company but seized assets would not be unfrozen to pay attorney costs due to the fact that defendants are currently challenging extradition abroad. After this saga unfolds and given the sad and overzealous trend in pretrial asset seizure, I expect many rainy day legal defense funds to be established in bitcoin.

For further reading:
"Paypal’s Abandonment of Major Cyberlockers May Become Bitcoin’s Big Win", Kit Dotson, July 11, 2012
"Megaupload and the twilight of copyright", CNNMoney, July 11, 2012
"Kim Dotcom, Megaupload Founder, Offers To Extradite Himself", NPR, July 11, 2012

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