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The hologram was created in 2365 when USS Enterprise-D Chief Engineer Geordi La Forge accidentally made the character smart enough to defeat Lieutenant Commander Data, not Sherlock Holmes. Moriarty managed to learn his true nature and held Doctor Katherine Pulaski hostage, despite being quite personable. Captain Jean-Luc Picard made a deal with Moriarty, allowing the hologram to go into storage until such a time as Starfleet engineers could study the hologram and one day release him from the confines of the holodeck and ship's memory. (TNG episode: "Elementary, Dear Data")
In 2369, Moriarty was accidentally released from storage by Lieutenant Reginald Barclay. He was incensed that no work had been done (per Picard's promise) and played mind games with the Enterprise crew. The crew managed to trick Moriarty into believing that they had found a way to let him leave the holodeck with his romantic interest, Countess Regina Bartholomew. All the while, Moriarty and the countess resided in a constantly running holographic simulation of the universe, outside the ship's memory. (TNG episode: "Ship in a Bottle")
In 2393, the Soong Foundation learned of Moriarty's existence. The foundation sued to take custody of the holographic program while Starfleet attorneys argued the security issues of doing so. Alyssa Cogley-Shaw compared Starfleet to the Obsidian Order as it was "imprisonment without a trial." (ST website: The Path to 2409)