The first time Tony Colston-Hayter made the headlines, in the autumn of 1988, he was the 22-year-old rave promoter dubbed "The acid house king", accused of luring Britain's youth into "an evil night of ecstasy". Twenty-six years later, he is in the news for a scam that makes unlicensed raves look like apple-scrumping. This week he pleaded guilty to being the mastermind of a gang who siphoned £1.3m from Barclays by hacking into bank computers. He also stole the bank cards of 24,000 customers, which he used to purchase luxury goods at Harrods and Selfridges.

Colston-Hayter is a curious figure in the history of dance music. He was only significant for 18 months but during that time he relocated acid house from underground clubs to massive open-air raves and, by forcing the government's hand, put Britain on the road to becoming a 24-hour society. The subsequent clashes between the free-party movement and the authorities, culminating in the unsuccessful 1994 campaign against the Criminal Justice bill, framed rave as an idealistic countercultural force demonised by politicians and newspapers. But Colston-Hayter was a pioneer who was hard to love and his philosophy was capitalism, red in tooth and claw.

Born in December 1965, Colston-Hayter always had big ideas. The son of a university lecturer and solicitor, he was a video-game fanatic who set up three gaming businesses while at school in Buckinghamshire, one of which achieved a turnover of £1m before going bankrupt. By then, he had a lucrative career as a professional gambler. He liked to claim that he was Britain's second most successful blackjack player, so feared by casinos that he had to visit them in disguise. With his self-confidence, entrepreneurial brio and love of champagne and fine clothes, he would have made a fabulously obnoxious Apprentice candidate.

Colston-Hayter's gambling career coincided with the birth of acid house. By the time he left the casinos each night, flush with cash, most clubs were closed so he was drawn to the legendary Shoom, one of the first clubs to bring house music to Britain. In Altered State, Matthew Collin's account of the rise of rave culture, Shoom DJ/promoter Danny Rampling remembers Colston-Hayter coming down with an entourage and spending thousands of pounds in cash on champagne. This old-fashioned hooray-henry behaviour was antithetical to Shoom's underground cachet and DJ Steve Proctor said Colston-Hayter was regarded as "a loud dickhead, a laughing stock".

Snubbed by the hip crowd, Colston-Hayter envisioned a less cliquey, more democratic and more profitable version of acid house. "If you were a mod, a punk or a hippy, you lived those lifestyles, whereas this is a weekend youth culture," he told one interviewer. "A city banker can shed his suit, put on his dungarees, dance all Saturday night away." In August 1988, he began promoting his first events, called Apocalypse Now, and publicised them by inviting the News at Ten down to film the action. This exposure alerted the tabloids to the new world of acid house.

On 12 October, The Sun's Bizarre page cried, "It's groovy and cool – it's our Acid House T-shirt!" and invited readers to "raise your street cred with Bizarre's guide to acid house lingo". Three weeks later, spurred into a U-turn by the UK's first ecstasy deaths, the paper ran the headline "Shoot These Evil Acid Barons" and a cartoon showing a smiley-faced Lucifer dispatching innocent clubbers to the fires of hell. Colston-Hayter, who had renamed his company Sunrise, was outed as "Acid's Mr Big".

In the late 1980s young ravers flocked to parties such as Colston-Hayter’s Sunrise parties. Photograph: Samantha Williams/PYMCA /REX

After a few setbacks in London venues, Colston-Hayter relaunched his Sunrise events in the countryside in the summer of 1989. Still a gadget freak, he realised he could use British Telecom's Voicebank system to fox the police. Flyers would include no venue address, just a phone number, and the answering machine would be updated with a series of rendezvous locations, so that finding a rave became an exciting treasure hunt around the M25.

He also hired a bullish young publicist. Paul Staines had first met Colston-Hayter a few years earlier at a national video game tournament. A libertarian Conservative at university, he went on to work for former Thatcher advisor David Hart. "I was a fanatical, zealot anti-communist," he told Collin. "I wasn't really a Tory, I was an anarcho-capitalist."

Staines found a new calling after he took his first E at one of Colston-Hayter's Apocalypse Now parties. "It was pure MDMA, and I was so out of it, so in love with everybody," said Staines who is now better known as the less loved-up political blogger Guido Fawkes.

As Sunrise and other big rave organisations flourished, moral panic ensued, with the Sun infamously claiming that ecstasy-addled ravers bit the heads off pigeons. ("How did they catch the pigeons?" retorted Colston-Hayter during a TV interview.) The police formed the Pay Party Unit, a new squad dedicated to clamping down hard on unlicensed parties. Some members of the government were dismayed that their opponents weren't pierced-and-dreadlocked outsiders but well-spoken rightwing entrepreneurs who stashed their profits in an offshore tax haven. A baffled Home Office official once screamed at Staines: "You're a rightwing Tory, why are you doing this?"

The Sunrise duo attempted to preempt a legislative crackdown by launching the Freedom to Party campaign at the 1989 Conservative conference in Blackpool. They presented themselves as innovative free-market mavericks, catering to a booming demand for all-night parties that couldn't be met under existing licensing laws. "Maggie should be proud of us, we're a product of enterprise culture," said Colston-Hayter. However, Staines also liked to compare himself to Sex Pistols manager Malcolm McLaren and 60s Yippie Jerry Rubin, and Colston-Hayter wasn't averse to stunts. During a late-night talkshow appearance, he handcuffed himself to an unamused Jonathan Ross and threw a glass of water over critic Paul Morley.

The opposition, however, was overwhelming. Sunrise's New Year's Eve party lost its venue at the last minute and a private member's bill created a law that increased fines for unlicensed parties tenfold. With Sunrise dead, the pair continued the Freedom to Party campaign for a few months, although that was motivated more by the profits they were making from selling T-shirts than by any hope of success. But their capitalist instincts were proved correct. They had identified an unsatisfied demand for all-night clubbing and the authorities were forced to satisfy it with more generous opening hours, while the police made the illegal alternative as frustrating as possible. The age of the superclub was on its way.

Colston-Hayter wasn't a cold-blooded cynic. He talked, with apparent sincerity, about a "new open-minded generation, who mix more with people of all races and social backgrounds". But he didn't swallow the aquarian rhetoric that swirled around rave during and after the second summer of love. "In some ways it was a throwback to the 60s but it was very much something else — it was totally non-political," he later reflected. "It was the ultimate hedonistic leisure activity."

People who felt that rave's collective euphoria really was a way of life, not just a fun weekend for City boys, doubtless found Colston-Hayter's pragmatism depressing. But modern dance culture, notwithstanding the underground variety, is much closer to his vision than to the free-party organisers' utopian idealism. Consider EDM's mindbogglingly lucrative takeover of Las Vegas in recent years and you can imagine a wealthy Colston-Hayter sipping Grey Goose at Hakkasan during a Calvin Harris set. Instead, he became a different kind of Mr Big.