Kim Dotcom says the New Zealand government gave him residency so it could extradite him to the US at a later date.
The internet mogul's lawyer, Paul Davison QC, said he has evidence to show the government approved Dotcom's residency in 2010 while he was being investigated by the FBI with the intention of extraditing him in the future.
Immigration New Zealand knew about the investigation, but a New Zealand minister intervened in the application, which was an abuse of power and process, Mr Davison told Auckland District Court on Thursday.
"These excesses of power and illegalities are all directed at one thing and that is getting Mr Dotcom secured and extradited.
"The timing of events fits in a remarkable way if it were a coincidence."
Before moving to New Zealand, Dotcom and his family had been living in Hong Kong, which also has an extradition treaty with the US, although extraditions can be overruled in some circumstances by mainland China.
But Christine Gordon QC, representing US prosecutors, said the theory was based on unsupported suspicions.
Even if it were true, it would have no effect on Dotcom's extradition hearing in July and should be struck out, she said.
"It's not a case where he was lured here. He wasn't tricked into coming.
"He wanted to come to live here and he got what he applied for."
On Thursday morning, Gordon applied to make suppressed documents detailing the case against Dotcom public, but Davison said it would jeopardise Dotcom's right to a fair trial.
The internet entrepreneur sat in the public gallery during the day-long court proceedings, occasionally checking his phone.
Judge Nevin Dawson adjourned the hearing until Monday morning when he'll hear an application to push back the July extradition hearing.
The Megaupload founder and his co-accused, Bram van der Kolk, Mathias Ortmann and Finn Batato, are fighting extradition to the US where they are facing internet piracy charges.