A little over a month ago we brought you the story that Megaupload were suing Universal Music Group for abusing mechanisms designed to stop copyright theft. Universal had been pulling out all stops to prevent a promotional video made by the file-sharing site, and featuring a number of Universal Music Group artists, from ever seeing the light of day.

But segue to today and it seems Universal Music and Recording Industry Association of America (RIAA) have had the last laugh with the US Feds going ahead with a grand jury indictment against Megaupload, leading to the arrest of four employees in Auckland, New Zealand who will be extradited to the US for trial.

The US Government was able to claim jurisdiction in the case due to Megaupload allegedly renting a server in the US state of Virginia. The indictment accuses Megaupload.com of costing copyright holders more than $US500 million in lost revenue from pirated films, music, and other copyrighted content.

A total of seven executives have been charged, three of them still at large, with charges ranging from racketeering conspiracy, conspiring to commit copyright infringement, and conspiring to commit money laundering which the grand jury indictment says is part of a “Mega Conspiracy”.

The suspects face a maximum penalty of 20 years in prison, according to a statement from the FBI who partnered with other government agencies to coordinate the arrests.

The US Justice Department says the case will be “among the largest criminal copyright cases ever brought by the United States.” They also claimed the action “directly targets the misuse of a public content storage and distribution site to commit and facilitate intellectual property crime.”

But the indictment suffers from appalling timing as a number of high-profile internet sites such as Google and Wikipedia disrupt their services as a protest against new copyright enforcement laws currently being debated by the US Congress.

The Megaupload website has now been taken offline but just hours prior the company had posted a statement on the front page claiming the allegations made against it and number of key executives were “grotesquely overblown”.

“The fact is that the vast majority of Mega’s internet traffic is legitimate, and we are here to stay. If the content industry would like to take advantage of our popularity, we are happy to enter into a dialogue. We have some good ideas. Please get in touch,” the statement said.

Jumping to the defence of Megaupload, the high-profile hacker network Anonymous issued a statement saying they had taken down the websites of the Justice Department, the Motion Picture Association of America, and the Recording Industry Association of America. All three sites remained inaccessible at the time of publication.

According to US authorities 20 search warrants were executed in nine countries, including the United States. About $50 million in assets were also seized, as well as a number of servers and 18 domain names.

A lawyer for Megaupload spoke to the New York Times about the arrests during a phone interview saying he hadn’t yet seen the indictment but “clearly we have due process concerns. This was done without a hearing.”

If you wish to read more about the debate raging in the US about new proposed anti-piracy law you can read about the basics in our recent opinion editorial on the future and legality of Grooveshark.