The judge in the Berkeley Burke case has said he could find the Financial Ombudsman Service's decision to order repayment to a fraud victim was in itself illegal.
Final submissions have now been made in the case where self-invested personal pension (Sipp) provider Berkeley Burke sought a judicial review of the FOS demand.
London's High Court heard Berkeley Burke was made to repay the £29,000 pension fund of Wayne Charlton.
Mr Charlton instructed Berkeley Burke to invest in Sustainable AgroEnergy, a company that purported to lease out land in Cambodia for the production of biofuel from jafotra trees.
However, in 2012 Sustainable AgroEnergy was investigated by the Serious Fraud Office and three of its directors were eventually imprisoned.
The review centred on whether Fos had been correct in ordering Berkeley Burke to repay Mr Charlton.
The disputes service had ruled that it was fair and reasonable to expect the Sipp administrator to carry out adviser-style due diligence.
In response, Berkeley Burke argued that it had clearly stated that it would not advise on investments and that Fos was creating new and unexpected duties for administrators in making the order.
Judge Richard Jacobs QC said: "I am considering the lawfulness of the ombudsman's decision under his own regime.
"The issue I have got to face is whether or not his decision was lawful."
Jonathan Kirk QC, representing Berkeley Burke, said: "The reason this was wrong for the ombudsman to construe the principle in the way that he did is because this constituted a new and unexpected duty of investigation."
During the hearing, Mr Kirk explained that the FCA Conduct of Business Sourcebook (COBS) requires companies to execute the orders that their clients give to them.
In response the ombudsmen, represented by James Strachan QC, argued that the FCA rules do not force administrators to carry out any order given to them by their client.
Earlier in the hearing, Mr Strachan said: "This argument is a startling one - that the claimant had no choice but to put Mr Charlton's money into a fraudulent scheme simply because Mr Charlton instructed them to do so.
"It is untenable. It is in direct conflict with the words of the rules themselves, which talks about 'when executing' not 'you must execute.'"
During the closing submissions, Mr Kirk argued that the rule should be applied in most cases but was not immutable.
He suggested that if the administrator suspected the investment to be fraudulent then they would be guilty under money laundering laws.
The judge asked: "So your submission is that there is an absolute duty subject to not committing a criminal offence?"
Mr Kirk said: "Yes. The reality is that any rule can never be said to be immutable."
The judge told the court that now submissions were complete, he would retire to consider his ruling.
During that time, the High Court is expected to make a ruling in the case of Adams vs Carey Pensions.