Kim Schmitz legally changed his surname to Dotcom at some point over the last decade, a homage to the technology that made him a millionaire and that has now landed him in a New Zealand jail.

The 38-year-old Internet entrepreneur was arrested Thursday at his birthday celebration inside a 25,000-square-foot mansion in Auckland. When police entered the property, Mr. Dotcom fled to a safe room, where he was found with a loaded shotgun, officials said.

Mr. Dotcom was charged with criminal copyright infringement and conspiracy to commit racketeering. The Federal Bureau of Investigation shut down his Hong Kong-based website, which it claims was used to pirate half a billion dollars worth of entertainment content.

The husky Mr. Dotcom is a kingpin in a little-exposed side of the Internet economy, who profited by tapping changes in technology, roiling the entertainment industry.

His company, Megaupload Ltd., and similar online storage sites known as cyberlockers, have many legitimate uses, such as allowing people to share large presentation files and home movies.

But U.S. authorities and entertainment executives say in court documents and interviews that cyberlockers are at the vanguard of online piracy. On Friday, the U.S. Congress abandoned two controversial antipiracy bills.

Despite the legal controversy brewing around his website—and a previous conviction for insider trading—Mr. Dotcom didn't lay low or hide anonymously behind his computer.

Rather, Mr. Dotcom openly enjoyed a lavish lifestyle. He owned at least 18 luxury cars—including a 1959 pink Cadillac and three cars with vanity license plates that read "HACKER," "MAFIA," and "STONED," according to U.S. officials—flew helicopters, and personally funded the city of Auckland's 2010 New Year's fireworks celebration.

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