The US Megaupload case is in tatters after an inquiry has been ordered into why New Zealand spooks had been engaged in unlawful spying prior to the arrest of Megaupload owner Kim Dotcom. NZ Prime Minister John Key said some communications were obtained "without statutory authority".

Dotcom is fighting extradition to the US where he faces accusations of copyright theft on a huge scale. The case was arranged by Big Content leaning on the US authorities. They believed that a small country like New Zealand would bow down to the will of the US.   To be fair the Kiwi government did its best by the look of it, but one of the things it could not do is ignore the law.  As the case starts to get unpicked, it is revealing how many short cuts the Kiwi cops took to try and stack some evidence against Kim Dotcom.

In June, an NZ court ruled that a search warrant used for a raid on Mr Dotcom's home was illegal. The court also said that Mr Dotcom should be allowed to see evidence on which his extradition hearing will be based, a decision US authorities have appealed against. This will be an interesting day in court.  The US will presumably say that extradition cases should not be required to be based on evidence against the person.

But it is looking like the latest statement from Key will be seen as another blow to the integrity of the US case. Key said that he expected our intelligence agencies to operate always within the law. Their operations depend on public trust. Mr Dotcom, writing on his Twitter account, backed the inquiry call.

"I welcome the inquiry by @JohnKeyPM into unlawful acts by the GCSB," he wrote. "Please extend the inquiry to cover the entire Crown Law Mega case."

Despite his ongoing legal battles, Mr Dotcom said a new version of Megaupload, called Megabox, was "90%" complete. He said "lawyers, partners and investors are ready" to back the site which is expected to launch before the end of the year.