He said Michaels was given VIP status that allowed him to stay free at the Crowne Plaza hotel across the road after playing the pokie machines day and night.
Michaels said his family was connected to a Cypriot shipping line and he worked as a "corporate raider" for a Hong Kong-based casino giant, Mr Lyttelton told the court.
"He told me the reason he had come to the Christchurch Casino was that he was employed by a company called Melco and they were looking at acquiring the SkyCity Group."
Mr Lyttelton said he believed Michaels because everything he told him was backed up by information on the internet. The story was made more plausible by media reports about a possible takeover of SkyCity.
Mr Lyttelton said Michaels offered him a role with Melco and work on his personal investments.
An initial salary offer of US$1 million ($1.2 million) snowballed to US$12 million as he was asked to work on projects including overseeing Auckland's SkyCity complex, running planned casinos in Macau and casinos on luxury cruise ships.
The Crown says Michaels never worked for Melco.
Michaels moved Mr Lyttelton up to Orewa, north of Auckland, where he stayed at the Edgewater Motel for more than two months.
Mr Lyttelton said Michaels told him the motel was owned by former Hanover director Eric Watson who he knew "at a level slightly better than an acquaintance".
A plan to buy it fell through.
The next project involved building a casino at Gulf Harbour, also north of Auckland.
Mr Lyttelton said Michaels had drawn up multimillion-dollar real estate deals for land around the premier golf course. Michaels told him he also had plans to build apartments for gamblers that would back on to the greens.
Those deals also fell through.
Other plans involved setting up an online gambling website named after Aphrodite, Greek goddess of love and beauty.
Mr Lyttelton said Michaels expected him to invest personally in the company.
"I felt if I didn't pay then all fury would break loose with Michaels and my opportunity with the Melco group would be placed in a precarious situation."
He said he used to meet Michaels at a cafe on Auckland's Ponsonby Rd.
The pair ate breakfast before Mr Lyttelton was driven to the bank in Michaels' gold BMW by one of his men. Mr Lyttelton withdrew money to invest in Michaels' scheme.
Mr Lyttelton said the amounts - as high as $60,000 - were always stipulated by Michaels and he was told to leave the cash under the passenger seat.
The Crown says National Party president Peter Goodfellow lent Mr Lyttelton more than $100,000 to invest.
Crown prosecutor Christine Gordon asked Mr Lyttelton if he ever received a receipt for his withdrawals.
"No, I didn't. I trusted him that it would go where he said it would go."
Mr Lyttelton said Michaels always had a wad of $100 bills he pulled out when paying living expenses and cafe bills.
The Crown alleges Michaels' offending occurred between 2007 and 2008.
Mr Watson and Mr Goodfellow aren't the only innocent high-flyers linked to the allegations. All Black great Jonah Lomu's name was used on a sale and purchase agreement for 12 luxury apartments in Taupo, the Crown says.
The trial, before Judge Christopher Field alone, is set down for eight weeks.
Connections
Eric Watson: Michaels claimed to know the former Hanover Finance director and had a sale and purchase agreement drawn up for the Edgewater Motel at Orewa he said Watson owned. The deal never went through.
Jonah Lomu: The Crown says Michaels added the All Black great's name to a sale and purchase agreement for 12 luxury waterfront Lake Taupo apartments. The deal never went ahead. Lomu is due to give evidence.
Peter Goodfellow: The National Party president loaned his friend Stephen Lyttelton more than $114,000 to invest in Michaels' schemes. He is also due to give evidence.
