Former Auckland City councillor Aaron Bhatnagar slammed Colin Craig for "impugning" his reputation in a "reckless and ignorant" way.
Bhatnagar, an investor and venture capitalist, gave evidence against former Conservative Party leader Craig at his ongoing High Court defamation trial this morning.
Craig is on trial for allegedly defaming Taxpayers' Union director Jordan Williams.
Bhatnagar said Williams contacted him in October 2015 and said Craig had claimed Williams had text messages stored that he planned to use against a political rival.
"According to Mr Craig I had allegedly sent some text messages that Jordan had been storing to use against me," Bhatnagar told the jury.
"He allegedly did this because Jordan was my political rival."
Bhatnagar believed Craig had made the accusation in a bid to show that Williams had a "bad reputation".
He revealed that Williams' lawyers later contacted Craig and advised him that, regarding the information he had passed on, he "had the situation totally wrong".
Bhatnagar said Craig's accusation was "wrong and reckless".
"I was angry and disturbed to learn that Mr Craig had incorrectly, ignorantly and recklessly impugned my reputation," he said.
"I am most certainly not a political rival and Jordan has not held text messages as potential ammunition against me. Mr Craig has gone off half-cocked."
Bhatnagar went on to say that all interactions he has had with Williams over the years, including as a financial donor to the Taxpayers' Union, had been positive.
"He was an effective and thoughtful political identity," he said.
"I considered him to be trustworthy. Mr Craig's effort to undermine Jordan's reputation was misguided."
Bhatnagar said he would "welcome" an apology from Craig and warned the former politician about speaking of him in the future.
"I will not hesitate to take legal action if Mr Craig makes any more unfounded accusations or comments about me," he said.
THE DEFAMATION ACCUSATION:
Williams is a friend of Craig's former press secretary Rachel MacGregor.
She turned to Williams after her shock resignation two days before the 2014 general election and disclosed to him that she felt Craig had sexually harassed her.
Williams said he was "horrified" at MacGregor's claims and revealed all to other Conservative Party members.
When Craig found out he publicly claimed Williams was part of a group of "culprits" determined to have him removed as party leader through a "campaign" of "false accusations".
At a press conference and in a pamphlet sent to more than 1.6 million households across the country, it was stated that Williams was a liar and had "spread false accusations".
Williams then filed defamation proceedings in the High Court, saying he did not lie about Craig.
Earlier this week MacGregor gave evidence in support of Williams' allegation. It is the first time she has spoken at length about her resignation.