If it turns out to be true, that's fine. If it's not true, don't you think Google should be held responsible for the damage to their competitor's reputation?
Twitpic is part of the Twitter ecosystem and is such is certainly competitive with Google's social and photo sharing efforts (i.e. Google+ and Picasa)
Being a known distributor of malware (described by Google as: software which causes things like identity theft, financial loss, and permanent file deletion) is a crime.
So yes, they are a competitor, and yes they are being accused of a crime.