Police are continuing their search at an Auckland mansion at the centre of an FBI-led bust on the world's largest file-sharing site.
Megaupload founder Kim Dotcom, also known as Kim Schmitz, and three associates were denied bail in court this afternoon.
All face extradition to the US for their alleged role in Megaupload which US Federal prosecutors say has cost copyright holders more than $620 million in revenue lost through pirated material.
The site has been shut down, sparking retaliatory action by hacking group Anonymous, which has attacked a number of US government websites.
Dotcom and his co-accused Finn Batato, 38, Mathias Ortmann, 40, both from Germany, and Dutch national Bram van der Kolk, 29, will reappear for a bail hearing at the North Shore District Court on Monday.
The accused face a maximum penalty of 20 years in prison on racketeering charges, five years for conspiracy to commit copyright infringement, 20 years on money laundering and five years on related charges.
The prosecution is being seen as a significant test case.
"This particular type of action around internet copyright infringement is a first in New Zealand in terms of an overseas person being attempted to be extradited to the United States," said Intellectual Property Lawyer Rick Shera.
Police said they are looking into Government bonds in an attempt to find the allegedly laundered money.
Detective Inspector Grant Wormald of the Organised & Financial Crime Agency New Zealand said the organisation and police had been working with the FBI for several months.
"The FBI contacted New Zealand Police in early 2011 with a request to assist with their investigation into the Mega Conspiracy," said Wormald.
"We were happy to provide this assistance. Staff from OFCANZ and New Zealand Police have worked with the US authorities over recent months to effect today's successful operation."
Police say there is no intention to try the group under New Zealand law.
"All the accused have been indicted in the United States. We will continue to work with the US authorities to assist with the extradition proceedings."
The Justice Department said two defendants are still at large.
Police have released more details about the raid, which took place just before 7am this morning.
Seventy-six police officers were involved in the raid at Coatesville mansion, which saw 18 luxury vehicles worth an estimated $6 million seized.
Shotguns, artwork and electronic equipment were also taken from the house, and up to $11 million in cash from various accounts, including government bonds, is being held by police.
Fifteen people, including children, were in the mansion at the time of the raid.
Detective Inspector Grant Wormald said entry to the Dotcom mansion was less than straightforward.
"Police arrived in two marked police helicopters. Despite our staff clearly identifying themselves, Mr Dotcom retreated into the house and activated a number of electronic locking mechanisms," Wormald said.
"While police neutralised these locks he then further barricaded himself into a safe room within the house which officers had to cut their way into."
Wormald said once police managed to get into the room, they found Dotcom near a firearm which appeared to be a shortened shotgun.
"It was definitely not as simple as knocking at the front door" said he Wormald.
A total of 10 search warrants were executed at residential and business addresses across Auckland.
In retaliation, hacking group Anonymous has attacked the public websites of the Justice Department, the FBI, the world's largest music company Universal Music, and the two big trade groups that represent the music and film industries.
"The government takes down Megaupload? 15 minutes later Anonymous takes down government & record label sites," a member of Anonymous tweeted.
Representatives with the Justice Department and Recording Industry Association of America declined comment on the attacks. Officials with Universal Music could not immediately be reached.
Motion Picture Association of America spokesman Howard Gantman said his group was working with law enforcement to identify the attackers.
Megaupload is a Hong-Kong based company, but Dotcom is a resident in both Korea and New Zealand and rents a house in Coatesville, north of Auckland.
The file-sharing website was reportedly once the 13th most popular website in the world, and was controversial in that it had the backing of celebrities and musicians, including endorsements from Kim Kardashian, Alicia Keys and Kanye West, among others.
The indictment comes a day after the 24-hour "blackout" of Wikipedia to protest proposed anti-piracy laws in the US.
- With Reuters