On 28 June 2012, Dotcom had a victory in Court when Justice Helen Winkelmann found the warrants used to seize Dotcom's property were invalid. The warrants could not authorise seizure of irrelevant material, and are therefore invalid." The Crown also revealed that police had handed seized hard drives to FBI staff who copied them at the police crime lab in South Auckland and sent the copies back to the US. Justice Winkelmann ruled that handing the hard drives seized in the raid to the FBI was in breach of extradition legislation and the FBI’s cloning of the hard-drives was also invalid.
Declaring the search warrants to be invalid was a significant victory for Dotcom because he was struggling to pay his mounting legal bills. At a hearing in the High Court on 28 August 2012, Justice Judith Potter allowed Dotcom to borrow approximately €6 million ($4.83m US) against a €10 million government bond. He was also allowed to sell nine of his cars. The amount released was to cover €2.6 million in existing legal bills, €1 million in future costs, and another €1 million in rent on his New Zealand mansion.
In September 2012 Prime Minister Key revealed that, at the request of the police, the New Zealand Government Communications Security Bureau (GCSB) had spied on Dotcom, illegally helping police to locate him and monitor his communications in the weeks prior to the raid on his house. Three days later, the Prime Minister John Key apologized for the illegal spying.
The mistakes by authorities have attracted widespread media coverage and John Key's handling of the affair has come in for some stinging criticism from Opposition parties in Parliament. Political commentator Bryce Edwards said the GCSB's involvement and the botched search warrants have "turned the pursuit of (Dotcom) and the operations of our law-enforcement agencies into the stuff of farce". A Waikato Times' editorial said that the announcement of the illegal spying has "heightened suspicions that this country's relationship with the United States has become one of servility rather than friendship... It is preposterous to suggest Mr Dotcom threatens our national security. The Government's unquestioning readiness to co-operate with American authorities seriously corrodes our claims to be an independent state."
John Key added to speculation about Hollywood's role in October 2012 when it was announced he was going on a four-day visit to meet top studio executives. Key said the trip was intended to promote New Zealand as a good country to produce movies, but he will have dinner with former US Democratic senator Chris Dodd who now heads Hollywood’s lobby group, the Motion Picture Association of America (MPAA) – which has described Dotcom as "a career criminal". Using Twitter, Dotcom said that Dodd was "responsible for the destruction of Megaupload & the abuse of my family".
