The Financial Services Authority (FSA) acted unlawfully in its investigation into Keydata, according to a High Court ruling today.

Keydata’s founder, Stewart Ford, brought the judicial review of the regulator over its use of legally privileged e-mails from Keydata’s and Ford’s former legal advisers, Irwin Mitchell.

In the first ever successful judicial review of an FSA-initiated investigation, the judge, Mr Justice Burnett, suggested the FSA adopt similar procedures to the police and serious fraud office when dealing with potentially legally privileged material.

Ford claimed that the use of privileged e-mails was just one in a long list of abuses by the FSA in its investigation of Keydata.

‘The FSA’s decision to rely on this legally privileged material despite the objections of my solicitors is symptomatic of an arrogance and an attitude that has been in evidence throughout its investigation into Keydata,’ he said.

‘The FSA investigation team is in blind pursuit of a pre-determined outcome.

‘They have made up their minds what the result should be and that no inconvenient truths should be permitted to stand in their way,’ he added.

The FSA closed down Keydata in 2009 for breaking tax rules and because the regulator declared the company insolvent.

The subsequent investigation revealed a series of revelations about how investors' money was handled, including how £103 million from 5,500 investors, which was entrusted to a fugitive and bankrupt called David Elias, disappeared when Elias apparently died in Malaysia in 2009.

During the investigation, PriceWaterhouseCoopers (PwC), the FSA’s nominated administrators of Keydata, gave the regulator access to Ford’s e-mail address and waived Keydata’s legal privilege.

The FSA’s subsequent investigation then placed heavy emphasis on legal advice he and the company had been given in confidence in defending themselves in the FSA investigation.

Ford argued that, as the advice had been given to senior executives in a personal capacity as well as representatives of the company, the privilege of the communications could not be waived by the company alone, as PwC had done.

Mr Justice Burnett therefore ruled that, due to this joint privilege, the information could not be used by the FSA in regulatory proceedings.

A further hearing will be required to determine what the full implications of today’s ruling will be for the FSA’s investigation into Keydata.