It is difficult to overstate the seriousness of the debacle that was the Serious Fraud Office's high-profile investigation of the property tycoons Vincent and Robert Tchenguiz. Indeed, the High Court judgment against the SFO yesterday represents a wholesale challenge to the competence and, worse still, good faith of the organisation which investigates and prosecutes complex fraud cases in the UK.
The court ruled that, in pursuing the Tchenguiz brothers in connection with the collapsed Icelandic bank, Kaupthing, the SFO obtained search warrants unlawfully to allow it to conduct dawn raids, in a blaze of publicity, at the height of the credit crunch in 2008. It did so by misrepresenting facts to a judge in a manner which was both inadequate and unfair. The SFO then lost documents, overlooked key financial reports and accepted information from complainants' accountants without independently checking it. It unlawfully kept evidence seized in the raids. All this, one judge said, amounted to "sheer incompetence".
The Tchenguiz case – dropped by the SFO in June – is bad enough. Yesterday's judgment on the illegal warrants can only add to the brothers' case for damages. But the implications for the future are graver still, not least because the SFO has since been given the much bigger job of investigating the Libor-fixing scandal that recently engulfed Barclays. And the High Court says the organisation lacks both the human and financial resources it needs to pursue complex economic crimes. Some reform has begun, with the appointment of David Green QC to lead the organisation. But there is more to do if the agency's reputation for competence is to be recovered.
The most obvious lesson to be drawn from the mess of the Tchenguiz inquiry is that such complex and high-profile cases can only be pursued with the utmost fastidiousness. But there is another, broader point, too. With its reputation in tatters and the very real prospect of a vast bill for damages, the SFO might be tempted to retreat altogether. That would be worse. It is up to Mr Green to remedy the SFO's shortcomings, not hide from them.