Advocate Aidan O’Neill QC told judge Lord Sandison on Wednesday that Ms Sturgeon didn’t understand the law on a form of investigation called Unexplained Wealth Orders.
The Court of Session heard how the Holyrood administration was asked last year to investigate how the Trump Organisation managed to pay for golf course developments in Scotland.
The government was told it could use an ‘Unexplained Wealth Order’ to investigate Mr Trump’s finances.
But Ms Sturgeon told the Scottish Parliament the government couldn’t launch such a probe and the responsibility for the investigation lay with the Crown Office’s Civil Recovery Unit.
Mr O’Neill told the court that Ms Sturgeon said the Civil Recovery Unit was politically independent from the Scottish Government.
The lawyer said the government’s position later changed. He said the-then justice secretary Humza Yousaf later announced the law allowed for the Scottish Government to launch an Unexplained Wealth Order investigation.
Mr O’Neill told the court that Mr Yousaf was correct – the law allowed for Scottish ministers to launch such a probe.
He said Ms Sturgeon failed to understand the law and that it was “worrying” that she didn’t have a proper understanding of the legislation.
Mr O’Neill, who is asking for permission from the court for a judicial review that he hopes would overturn the Scottish Government’s refusal to launch an unexplained wealth order against Mr Trump, added: “We know that the First Minister initially said in July 2020 that any decision on whether to apply for an Unexplained Wealth Order is made on behalf of the Scottish ministers by the Civil Recovery Unit which reports to the Lord Advocate.
“Now, there is all sorts which could be unpacked from that – the legislation states that it is the responsibility of the Scottish ministers.
“But that was the position stated in July 2020. Now that has shifted markedly in November 2020 when we see that the First Minister said to Parliament the decision on whether to apply for the Unexplained Wealth Order was not for the ministers. It was instead for the Crown Office who operate independently from the Scottish ministers.
“That’s just wrong and that was pointed out to them. In the answers, they say ‘yes, that was just wrong’.
“We then get a different position when this time it’s the Cabinet secretary for justice speaking – Humza Yousaf.
“He now concedes that the power to ask for an Unexplained Wealth Order does formally lie for the Scottish ministers.
“But he says it is for the Civil Recovery Unit to independently undertake an investigatory role on behalf of the Scottish ministers and this must not be subject to any form of political interference.
“Again it’s a shifting position.
“Strangely, the First Minister didn’t understand the law and misled Parliament on that point. That’s actually significant and worrying for if they have misunderstood the law once and they are in error there’s every likelihood- unless they get proper guidance from the court – that they could do so again.”
Mr O’Neill was speaking during a hearing on Wednesday which concerns how Mr Trump obtained the funding for the Menie golf course in Aberdeenshire and the Turnberry resort in Ayrshire.
He is acting for Avaaz – an international human rights group that is seeking to force the government to reverse its decision not to investigate the courses' funding.
The Scottish Green Party first called for an ‘Unexplained Wealth Order’ in February amid questions about how Mr Trump had managed to finance the purchases of the courses at Turnberry in 2014 and at Menie In 2006.
The UK Government introduced the orders in 2018 to help investigations into money laundering and other criminal financial activity.
Patrick Harvie, the Greens co-leader, has said Mr Trump's unusual pattern of spending and the ongoing civil and criminal cases in the US provided Scottish authorities with the grounds to investigate the businessman.
Mr Trump's son Eric said the claims had "no basis in fact".
He accused Mr Harvie of making "disgusting statements" that were "reckless, irresponsible and unbecoming for a member of the Scottish Parliament”.
On Wednesday, Mr O’Neill said that recent developments in the United States provided the Scottish Government with grounds to investigate Mr Trump.
He said the Trump Organisation’s former chief financial officer Allen Weisselberg had been charged in New York with alleged tax evasion and fraud.
Mr O’Neill said Mr Weisselberg had involvement with Mr Trump’s business interests in Scotland.
The advocate also said that EU law on money laundering allowed ‘politically exposed’ people such as Mr Trump – and their close associates – to be investigated.
He added: “Documents lodged at Companies House reveal that there are significant assets owned by corporate entities in Scotland. It is clear that they linked to the Trump Organisation and various individuals are listed as having a significant interest.”
Ruth Crawford QC said the law surrounding judicial reviews meant that matters had to be raised at the court within three months of the decision being passed.
She said Mr O’Neill’s clients hadn’t acted within three months of the Scottish Government’s refusal and the matter shouldn’t proceed.
Ms Crawford also said Mr O’Neill had misunderstood the law surrounding Unexplained Wealth Orders and the Scottish Government had acted lawfully.
Urging Lord Sandison not to grant Mr O’Neill’s client permission to have a judicial review, Ms Crawford added: “Such an issue is not justiciable. It has no real prospect of success.”
Lord Sandison said he needed time to consider his decision.
He told the lawyers: “I won’t give a decision at this point in time. A decision will be issued very shortly, within the scope of the next few days..”