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Handling pirated files is illegal, as far as I know.
The numbers that record sales have dropped and that p2p is to blame is perhaps questionable, but at least the record companies want it to appear as such.
As for the police raids, I suppose they want to make an example of some people to make the rest of the filesharers to think twice about downloading these files. I don't know how long this effect will last, though.
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Nothing is impossible, it's just a matter of probability.
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