The Government Communications Security Bureau continued to illegally spy on Kim Dotcom for ten days after the raid on his home, his lawyers claim.
The internet mogul will today up the ante in his fight against extradition by releasing a "white paper" detailing how the crimes he is accused of do not exist in law.
The dossier, written by his US lawyer Ira Rothken and international lawyer Robert Amsterdam, accuses the US government of "dirty tricks" used to "manufacture" a criminal case against Dotcom.
The 39-page report contains the allegation that illegal surveillance continued for 10 days after the dramatic Hollywood-style raid on his Coatesville home, north of Auckland.
Dotcom believes he and his co-accused were monitored in remand and surveillance on their phones and emails remained active.
He says the Crown confirmed in a letter that surveillance was ongoing after the raid. The report is critical of the actions of New Zealand authorities, which also raided his home using illegal search warrants.
But it says US prosecutors tipped off journalists about the dramatic raid in January 2012, unnecessarily released a 72-page indictment and conducted a "black media campaign" targeting Dotcom's flamboyant lifestyle and financial success. The lawyers' most damning judgment is their claim the US case built against Dotcom and his co-accused has no basis in law.
It says the US misrepresented facts, and intentionally omitted critical information when it applied for search warrants to seize the company's domain names.
Dotcom and the other MegaUpload defendants are charged with copyright infringement for the acts of clients using their cloud storage facilities. However, the report says no criminal statute for secondary copyright infringement exists under US law.
Only American lawmakers in Congress could create the new criminal liability, not judges or courts, the report says.
Cloud storage and other online companies like MegaUpload are also offered "safe harbour" in law for the misuse of their services. The lawyers point to a recent case against YouTube which placed the burden on the copyright holder, not the internet firm.
The report also argues that MegaUpload went "above and beyond what it was legally required to do" and allowed major copyright holders access to remove links which they believe infringe copyright. This resulted in 15 million "takedowns." The lawyers also argue there was no "wilful infringement" by the company, because it immediately responded to copyright take-down notices.
The case is also "legally untenable" because MegaUpload and its executives do not reside in the US and most of its activities occurred elsewhere, they said. MegaUpload was also given no opportunity to challenge a seizure notice on its assets.
The report also accused the US government of attempting to "colonise" the internet.
"The MegaUpload case reflects and improper effort by the US government to expand its global reach, prosecuting companies and individuals it believes have violated US law, regardless of where they reside around the world," it says.
It also re-affirms Dotcom's assertions that the prosecution was driven by the Motion Picture Association of America which represents the six largest film and TV studios in Hollywood.
GCSB director Ian Fletcher said yesterday its operation was from December 16 2011 to January 20 2012 when the arrests were made.
"Technically the unlawful surveillance ended on 30 January 2012 when the necessary administrative steps were completed, however any material from after 20 January was not accessed or viewed by any analysts until after the GCSB realised it had acted unlawfully.
"This was explained to the plaintiffs in March this year, as part of the continuing legal process."
SILENCE FROM THE TOP
US Attorney-General Eric Holder is in New Zealand - but refusing to answer questions on the Kim Dotcom case.
He would only grant interviews to selected media yesterday, and reporters were barred from a speech at the University of Auckland for law students and faculty.
Those present were asked to turn off all electronic devices and had to pass through a security check. Questions for the attorney-general had to be pre-vetted, an attendee said.
Mr Holder's US speeches are usually open to the media. His speech notes were later supplied to journalists. He was in Auckland for a meeting of attorneys-general of the US, Britain, Canada, Australia and New Zealand US embassy media specialist Sean Gillespie said Mr Holder "was not able" to talk about the Dotcom case.