This is not a fair example. A single staff member's personal use of the service has no bearing over the legitimacy of the service or whether the service has copyright liability. That's not the red-flag knowledge we're looking for.
Businesses that violate copyright -- even on massive scales -- usually resolve it through civil claims. I have little doubt Megaupload was a giant infringement scam, but if we let any vague or inconclusive evidence set a precedent for secondary copyright liability on a _criminal_ level, things could get out of hand.
My post was not intended as a defense of them per se. I care more about the generalities of the law, rather than about MegaUpload specifically. You made it sound like knowledge of infringement in general was enough when it's not, per Veoh, prompting my post. If they had knowledge of specific acts of infringement, they may well be in trouble, but that wasn't my point.
And I should probably disclaim that, as always, anyone with more than an academic interest in this should consult a lawyer.
Admittedly these issues are for the courts to decide, not message boards, but come on: by all the evidence available to us message board peons, these guys were a bunch of crooks.