Too legit to quit? Megaupload was headed for billion dollar IPO before Feds shut it down

Apparently Megaupload founder Kim Dotcom is under the impression that when companies go public, it means they are a legitimate business (see Enron, Groupon, etc). Pirate news site TorrentFreak reports that before it was shut down by U.S. authorities, Megaupload was preparing for a billion dollar IPO, and had contacted major accounting firms to have its business audited.

Why is anyone pointing this out? Well, the thinking goes, if Megaupload really was a major criminal enterprise, it never would have invited reputable accounting firms to audit every aspect of its business.

TorrentFreak sources their information to Robert Lim, a Hong Kong-based corporate advisor brought on by Megaupload to advise on the IPO process:

“Objectively speaking, for the criminal case it brings up the question if there really was a so-called ‘Mega-Conspiracy’ among Megaupload management. It is clear Megaupload management was seriously exploring options for taking the company to public listing,” Lim told us.

“They also knew full well that it would require a lot of scrutiny, due diligence and review of the operations, financials and overall business model of Megaupload not only by the auditors / accountants, lawyers for regulatory filings and IPO underwriters, but also the various regulatory agencies which govern the stock exchanges and public markets.”

“This does not fit with the ‘Mega-Conspiracy’ concept that Megaupload management is accused of, including that they knowingly and secretly conspired to do and hide criminal activities in Megaupload,” Lim adds.

Well, yes and no. There was plenty of legitimate business being done on Megaupload. There was also plenty of illegal file sharing being done by users that Megaupload could have claimed protection against under the safe harbor of the DMCA. As to a conspiracy by the founder to upload certain files for profit, it’s not clear at all that this kind of activity, arranged by email, phone or in person, would have come to light during an audit of their financials.

It certainly adds a new wrinkle to the company’s defense for the upcoming case and a blockbuster what if? for all those bankers making beaucoup bucks off the current wave of tech IPOs.