The Rise And Fall Of An Internet Heavyweight: “Mega” Millionaire Kim Schmitz

After years of living large, German hacker turned celebrity Kim Schmitz is suddenly in serious trouble. At the behest of U.S. authorities, the Megaupload's founder was nabbed last week in New Zealand. Die Welt charts the unusual career of a “dotc

Kim Dotcom appearing before a New Zealand court on Jan. 23, 2012 (afpde)
Kritsanarat Khunkham

BERLIN - Everything was always mega with Kim Schmitz: MegaPorn, MegaVideo, MegaLive, MegaPix. He was a mega hacker and a mega con man. As it turns out, he was also the guy behind Megaupload, the initial target of America's sudden anti-piracy crackdown.

At the request of U.S. authorities, police in New Zealand arrested four people last week for their alleged involvement with the download site megauploads.com. On the photograph released by the police there was – to the surprise of many here in Germany – a familiar face: Kim Schmitz.

He's 37 years old now, but he still has that baby face, still dresses in black, and is still twice the size of anyone around him. Schmitz is an Internet legend who for years has been off the radar. A hacker, race car driver, investor, playboy: Schmitz the outlaw became a multi-millionaire when the Internet was drawing megalomaniacally high investments. Schmitz is one of those dotcom golden era guys who were part of the reason the boom turned out to be an exploding bubble.

Now he's changed his name to Kim Dotcom aka "Kim Tim Jim Vestor," and he's back on the radar as the driving force behind a global file sharing site that was illegally putting TV series, movies, music, porn, and software out there.

Schmitz was born in 1974 in Kiel, Germany, and grew up in northern Germany. His father piloted the luxury cruise liner "MS Deutschland." His mother was a chef. He attended a posh boarding school, the Staatliche Internat Schloss Plön, and got his first computer when he was nine. Because gaming software cost too much for him to buy, he figured out how to make illegal copies and went into business selling them to friends for a few marks a piece.

"Smarter than Bill Gates'

Three years later, well before the World Wide Web was available to everyone, Schmitz used 12 telephone lines to hack into other computers. The jumbled mass of cables in his room, however, failed to send off any alarm bells. "My parents had no idea what was going on," he would say later. "To them it was all just a bunch of blinking little lights."

"Kimble" – his name in hacker circles, based on a character in The Fugitive – was a self-mythologizer who claims to have pulled off the spectacular coup of transferring $20 million from Citibank's account to Greenpeace. He liked to portray himself as a modern-day Robin Hood, as David playing digital dirty tricks on the mighty Goliath.

He left a calling card every timed he hacked: two skulls and the name Kimble. And he patted himself on the back: "I'm smarter than Bill Gates," he said. "I'm going to be one of the richest men in the world."

During the Gulf War, Schmitz broke into the U.S. Defense Department's computer system and, according to him, "found some servers with real time connections to spy satellites' monitoring Saddam Hussein's palace. A BBC report says that Schmitz also succeeded in hacking the account of former German Chancellor Helmut Kohl. He reportedly changed Kohl's credit limit to zero.

Early one morning in 1994, Schmitz got a visit: Munich police raided his apartment. Then 20 years of age, he was held in custody for three months prior to legal proceedings, but then got off with a two-year suspended sentence.

After that slap on the wrist, things went well for Schmitz. Companies courted him, vying with each other to get him on board as a security consultant. Just a week after his release he landed a contract with Lufthansa. He ended up creating a data protection company called DataProtect, 80% of which he was able to sell to the technical monitoring entity TÜV Rheinland before it went bankrupt soon thereafter.

Living large.. and at large

Then Schmitz, apparently converted, changed sides and broke with the hacker scene. He had a large following in the tabloid press. The big fat guy with a $500-million fortune (his estimate) knew how to play to the paparazzi: Schmitz in the arms of a Brazilian babe, Schmitz in his limo with Internet connection, Schmitz with his "friend" Ronaldo, the international soccer star.

A YouTube video shows him at the wheel of a Mercedes doing 200 km/hr as he competes in the "Gumball 3000" running event. The license plate on one of his cars read "God." Other videos showed him bathing in huge marble tubs, on zillion-dollar yachts, always surrounded by luscious bikini-clad women. There were hundreds of manifestations of an enviable luxurious lifestyle: Kim the pop star, Kim the Internet veteran, wanted public recognition and he got it.

After 9/11, Schmitz offered a $10-million reward on the Internet to anyone who provided information leading to the capture of Osama Bin Laden. That initiative did not meet with success, but the same year Schmitz promised the ailing firm letsbuyit.com 50 million euros to get it back on its feet. As news of this spread, it ended up resulting in the biggest turnover ever registered in a single day in the history of the Frankfurt stock exchange. He then sold his shares in the company for a record sum. When the district attorney's office started investigations for insider trading, Schmitz legged it to Thailand.

He was arrested in Bangkok in January 2002 after he announced he would be committing suicide live on the Internet. He was convicted of insider trading and sentenced to a year and eight months of prison. After this, things quieted down around Schmitz, although periodically he announced new projects. His name was first associated with Megaupload in 2007, but it wasn't until 2011 that he was confirmed as its founder.

Going out with a bang

At the time of his latest arrest, Schmitz was living in a $30-million mansion near Auckland. The Coatesville estate was one of the most expensive in the country. He had originally intended to buy it, but some politicians put up resistance to this and in the end Kim Dotcom ended up renting. But he did get a residence permit – apparently after buying $10 million worth of government bonds and giving generously to funds collected for victims of the Christchurch earthquake. For the New Year, he donated the money for a huge fireworks display in the harbor. That made New Zealanders happy, and enabled him to feel like the great philanthropist.

When he was arrested last Thursday, police took possession of objects including paintings and a Rolls Royce Phantom, and money adding up to a total of approximately 3.7 million euros. According to U.S. authorities, Megaupload made more than $175 million in illegal profits and owes damages to the legal owners of the stolen content totaling well over $500 million.

And yet Schmitz received support from a number of stars, including singers Alicia Keys and Kanye West, probably because he had promised that they would each get 90% of earnings on their respective content. In late 2011, Schmitz released a mega-successful ad video for Megaupload featuring many big stars. He himself is also featured singing on the video.

According to the New Zealand police officer leading the arrest, Grant Wormald, when Schmitz realized the police had arrived he tried to hide in a special high-security room inside the mansion and "activated a series of electronic locking systems." After police had "neutralized" him, he tried to barricade himself in the space. Police had to cut their way through the obstacles. "We found Mr. Dotcom in the room near a weapon that looked like a sawed off shotgun."

Megaupload has been taken offline and Schmitz himself may now be out of circulation for some time. If convicted of organized exchange of illegally copied data he could be looking at up to 20 years in prison. Not such a mega outcome.

Read the original article in German

Photo - afpde

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Merkel's Legacy: The Rise And Stall Of The German Economy

How have 16 years of Chancellor Angela Merkel changed Germany? The Chancellor accompanied the country's rise to near economic superpower status — and then progress stalled. On technology and beyond, Germany needs real reforms under Merkel's successor.

Chancellor Angela Merkel looks at the presentation of the current 2 Euro commemorative coin ''Brandenburg''

Daniel Eckert

BERLIN — Germans are doing better than ever. By many standards, the economy broke records during the reign of outgoing Chancellor Angela Merkel: private households' financial assets have climbed to a peak; the number of jobs recorded a historic high before the pandemic hit at the beginning of 2020; the GDP — the sum of all goods and services produced in a period — also reached an all-time high.

And still, while the economic balance sheet of Merkel's 16 years is outstanding if taken at face value, on closer inspection one thing catches the eye: against the backdrop of globalization, Europe's largest economy no longer has the clout it had at the beginning of the century. Germany has fallen behind in key sectors that will shape the future of the world, and even the competitiveness of its manufacturing industries shows unmistakable signs of fatigue.

In 2004, a year before Merkel was first elected Chancellor, the British magazine The Economist branded Germany the "sick man of Europe." Ironically, the previous government, a coalition of center-left and green parties, had already laid the foundations for recovery with some reforms. Facing the threat of high unemployment, unions had held back on wage demands.

"Up until the Covid-19 crisis, Germany had achieved strong economic growth with both high and low unemployment," says Michael Holstein, chief economist at DZ Bank. However, it never made important decisions for its future.

Another economist, Jens Südekum of Heinrich Heine University in Düsseldorf, offers a different perspective: "Angela Merkel profited greatly from the preparatory work of her predecessor. This is particularly true regarding the extreme wage restraint practiced in Germany in the early 2000s."

Above all, Germany was helped in the first half of the Merkel era by global economic upheaval. Between the turn of the millennium and the 2011-2012 debt crisis, emerging countries, led by China, experienced unprecedented growth. With many German companies specializing in manufacturing industrial machines and systems, the rise of rapidly industrializing countries was a boon for the country's economy.

Germany dismissed Google as an over-hyped tech company.

Digital competitiveness, on the other hand, was not a big problem in 2005 when Merkel became chancellor. Google went public the year before, but was dismissed as an over-hyped tech company in Germany. Apple's iPhone was not due to hit the market until 2007, then quickly achieved cult status and ushered in a new phase of the global economy.

Germany struggled with the digital economy, partly because of the slow expansion of internet infrastructure in the country. Regulation, lengthy start-up processes and in some cases high taxation contributed to how the former economic wonderland became marginalized in some of the most innovative sectors of the 21st century.

Volkswagen's press plant in Zwickau, Germany — Photo: Jan Woitas/dpa/ZUMA

"When it comes to digitization today, Germany has a lot of catching up to do with the relevant infrastructure, such as the expansion of fiber optics, but also with digital administration," says Stefan Kooths, Director of the Economic and Growth Research Center at the Kiel Institute for the World Economy (IfW Kiel).

For a long time now, the country has made no adjustments to its pension system to ward off the imminent demographic problems caused by an increasingly aging population. "The social security system is not future-proof," says Kooths. The most recent changes have come at the expense of future generations and taxpayers, the economist says.

Low euro exchange rates favored German exports

Nevertheless, things seemed to go well for the German economy at the start of the Merkel era. In part, this can be explained by the economic downturn caused by the euro debt crisis of 2011-2012. Unlike in the previous decade, the low euro exchange rate favored German exports and made money flow into German coffers. And since then-European Central Bank president Mario Draghi's decision to save the euro "whatever it takes" in 2012, this money has become cheaper and cheaper.

In the long run, these factors inflated the prices of real estate and other sectors but failed to contribute to the future viability of the country. "With the financial crisis and the national debt crisis that followed, economic policy got into crisis mode, and it never emerged from it again," says DZ chief economist Holstein. Policy, he explains, was geared towards countering crises and maintaining the status quo. "The goal of remaining competitive fell to the background, as did issues concerning the future."

In the traditional field of manufacturing, the situation deteriorated significantly. The Institut der Deutschen Wirtschaft (IW), which regularly measures and compares the competitiveness of industries in different countries, recently concluded that German companies have lost many of the advantages they had gained. The high level of productivity, which used to be one of the country's strengths, faltered in the years before the pandemic.

Kooths, of IfW Kiel, points out that private investment in the German economy has declined in recent years, while the "government quota" in the economy, which describes the amount of government expenditure against the GDP, grew significantly during Merkel's tenure, from 43.5% in 2005 to 46.5% in 2019. Kooths concludes that: "Overall, the state's influence on economic activity has increased significantly."

Another very crucial aspect of competitiveness, at least from the point of view of skilled workers and companies, has been neglected by German politics for years: taxes and social contributions. The country has among the highest taxes on income in Europe, and corporate taxes are also hardly as high as in Germany anywhere in the industrialized world. "In the long run, high tax rates always come at the expense of economic dynamism and can even prevent new companies from being set up," warns Kooths.

Startups can renew an economy and lay the foundation for future prosperity. Between the year 2000 and the Covid-19 crisis, fewer and fewer new companies were created every year. Economists from left to right are unanimous: Angela Merkel is leaving behind a country with considerable need for reform.

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