By Kirstin Ridley
LONDON (Reuters) - Two top judges slammed Britain's fraud-busting agency on Tuesday for obtaining search warrants unlawfully during a controversial probe into property magnates Vincent and Robert Tchenguiz, dealing a fresh blow to embattled investigators.
They declared the Serious Fraud Office (SFO), already accused of "sheer incompetence" in the investigation, obtained the warrants "by misrepresentation and non-disclosure", after the brothers launched a legal challenge over how the agency conducted its inquiry.
"At the hearing before the judge (to obtain the search warrants), the oral evidence given (by the SFO) ... was both unfair and inaccurate. The tone of that evidence was unjustified," the court said in its summary.
The ruling piles further pressure on new SFO chief David Green and brought a renewed pledge to sue for damages from both Tchenguiz brothers.
"I now intend to pursue my claim in respect of damages I have suffered as a result of the SFO's (Serious Fraud Office's) illegal actions," Robert Tchenguiz said on Tuesday in a statement.
"I also intend to bring proceedings against the SFO in respect of my arrest."
One of Green's first jobs in office was to drop the case against Robert's older brother Vincent, who was also briefly arrested in March last year in a blaze of publicity.
Vincent said his claims against the SFO -- and any other party related to the debacle -- would reflect the "substantial personal and business costs and losses" he had suffered.
"It has taken an inordinate amount of time for this to be resolved," he said. "As anyone in business will tell you, time is money."
The investigation stems from the brothers' dealings with Icelandic bank Kaupthing, which they tapped for large loans shortly before it buckled in the 2008 financial crisis. British retail depositors lost millions in the collapse.
The Tchenguiz brothers, who have made headlines in the British media over their lavish parties and luxury lifestyle, say the publicity surrounding their arrest and raids inflicted lasting damage on their reputations and businesses.
CASE AGAINST ROBERT
The case, once one of the SFO's most high profile, has become its most notorious and the agency has already offered a series of apologies.
It is not clear if the fraud busting agency has the appetite to proceed with its case against Robert who, along with his companies, owed Kaupthing around 1.6 billion pounds ($2.51 billion) at the time of its collapse.
"If that was flawed (the search warrants), then the new Director may form the view that the continuing prosecution of RT (Robert) is not in the public interest," said Raj Parker, a partner at Freshfields Bruckhaus Deringer.
The judges said their role was not to rule on the merits of the investigation but they again called for the cash-strapped SFO to be better funded.
"It is clear that incalculable damage will be done to the financial markets of London if proper resources, both human and financial, are not made available for such investigations and prosecutions in the financial markets of London," Judge John Thomas said.
The SFO's Green, who has launched a complex investigation into the rigging of interbank lending rates, has already promised to focus on big cases and improve intelligence and quality control.
The annual budget of the SFO is currently 32 million pounds -- far short of the hundreds of millions of pounds some of Britain's regional police forces receive each year.
The SFO had no immediate comment.
($1 = 0.6372 British pounds)
(Reporting by Kirstin Ridley; Editing by Mark Potter and David Cowell)
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