Government fraud investigators came under attack today as two property magnates arrested during an inquiry into a failed Icelandic bank launched a High Court fight to clear their names.
The Serious Fraud Office (SFO) was accused of "institutional failure" as brothers Robert and Vincent Tchenguiz asked judges to review investigations into their business dealings.
A lawyer representing Vincent Tchenguiz told judges Sir John Thomas, president of the Queen's Bench Division of the High Court, and Mr Justice Silber that the case raised "fitness for purpose" issues.
And a lawyer representing Robert Tchenguiz said the SFO had made "inaccurate and untrue" allegations.
The SFO has yet to outline its side of the story to judges.
Robert and Vincent Tchenguiz were arrested and questioned in March last year after investigators swooped on their London headquarters during an investigation into the collapse of Kaupthing bank, one of three Icelandic banks which failed at the height of the credit crunch in October 2008.
Both men were released on bail without charge pending further investigation.
They are challenging the lawfulness of SFO decisions at a judicial review hearing in London and want damages.
At a preliminary hearing in February, Sir John said the case was a "serious affair" which raised "serious issues" about the "interplay between crime and the financial world".
Lord Goldsmith QC, for Vincent Tchenguiz, today told Sir John and Mr Justice Silber that the SFO had made "false" and "misconceived" allegations.
"A failure on the part of an investigating authority to pick up on every detail during the course of a major investigation is not necessarily evidence of negligence or dereliction of duty," said Lord Goldsmith, a former Attorney General, in written submissions.
"But the nature and extent of the SFO's admitted errors in the present case are of a different order. In Vincent Tchenguiz's submission they point to collective institutional failure."
He added: "In the absence of a compelling explanation from the SFO the evidence in this case, taken as a whole, raises 'fitness for purpose' issues."
Lord Goldsmith said "unfounded allegations" were made "very publicly" and had "serious consequences" for Tchenguiz's companies.
He said companies' ability to trade had been "ruptured" and added: "This case demonstrates investigative myopia on the part of the SFO."
Lord Goldsmith said the inquiry into Vincent Tchenguiz had been "procedurally wrong and unlawful" and said there was no need for investigations to continue.
Lord Macdonald QC, for Robert Tchenguiz, today said SFO allegations were "inaccurate and untrue" and told judges in written submissions: "The decision to arrest was not based on reasonable grounds".
At the preliminary hearing in February, Robert Tchenguiz had complained of being wrongly and unnecessarily arrested.
And Lord Macdonald, a former Director of Public Prosecutions, had told judges that Robert Tchenguiz's arrest was "not lawful" and had "affected his ability to conduct business effectively".
Lord Macdonald had added, in a written statement of claim: "The conduct of some officers during the search ... was absolutely shocking, involving the deliberate misuse of the toilet facilities. This conduct has been drawn to the attention of the (SFO)."
After the February hearing, then SFO director Richard Alderman said allegations were being contested.
The hearing continues tomorrow.