One Megaupload user was allegedly paid more than US$50,000 by Kim Dotcom for creating thousands of links to illegal videos on the website, a court has heard.
The extradition hearing before Auckland District Court began last week after nine previous hearings were abandoned amidst three and a half years of legal wrangling.
The FBI laid charges in January 2012 when the internet entrepreneur and three others - Mathias Ortmann, Bram van der Kolk and Finn Batato - were indicted on 13 charges including copyright infringement, racketeering, money laundering and fraud.
It is alleged the men all worked on the Megaupload site, in various capacities, on which there was a slew of copyright-infringing material posted and shared by its users.
Christine Gordon, QC - on behalf of the US government - said they allegedly paid the most prolific users who attracted huge volumes of traffic to the site, knowing the content breached copyright laws.
She said 77 per cent of the website members had been subject to at least one take-down notice by copyright holders, while 56 per cent had attracted 10 or more.
Rather than censuring these users, it is alleged Dotcom and his co-defendants protected them and lavished them with cash rewards and online privileges.
Ms Gordon detailed the "biography" of a user referred to only as "TH", who received more than $50,000 in reward payments between 2006 and 2011.
The user amassed 1200 take-down requests - all of which were allegedly processed by van der Kolk - and those links generated 1.2 million downloads.
Ms Gordon said no steps were taken to restrict his offending and instead the defendants increased his server space to 2.5 terabytes to accommodate his 30,000 files.
However, he sent threatening emails to the website when he believed he was not being paid sufficiently for his "work".
Ms Gordon read Dotcom's alleged email response: "You and your friends are at most one per cent of our traffic so please don't overestimate your importance to us. We're thankful of your support of Megaupload in the past and I think we have been fair to you."
By June 2011, the rewards scheme ended and Dotcom was quick to distance himself from other websites which continued the practice.
He allegedly emailed Paypal - the former conduit he had used to pay his top members - with information about the "criminal activity".
"They pay everyone no matter if the files are pirated or not and they have NO repeat infringer policy, and they are using Paypal to pay infringers," Dotcom wrote.
Ms Gordon said the words were hypocritical.
"They describe the payments as illegal but Megaupload had done that for six years," she said.
The hearing before Judge Nevin Dawson is scheduled to last three more weeks.