Undercover reporter Mahmood posed as a movie producer and is said to have offered Tulisa, 26, a multi-million pound deal, before allegedly filming her brokering a cocaine deal.
Now Louis, 61, who worked with Tulisa for two years when she was a judge on the X Factor, has hit out at Mahmood and insisted he never doubted her innocence.
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He told the Irish Mirror: "I supported her right through. I gave the whole story about how much I knew her and how I never saw her taking drugs. She was totally set up."
Louis said that he had no doubt that Tulisa would bounce back following the trial 'collapsing' and being thrown out of court.
He continued: "It was total entrapment. They tried to ruin her life. It was wrong and she is going to come back fighting."
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During her BBC3 documentary Tulisa: The Price of Fame, the former N-Dubz singer admitted she tried to take her own life at the height of the drugs scandal.
Music manager Louis said he wasn't surprised, adding: "No, because I think the pressure on her has been so incredible.
"They took everything away from her. They took her name, she wasn't on X Factor – she was ruined.
"Someone tried to ruin her and you cannot do that. I hope he goes to jail."
Tulisa is now trying to rebuild her career and her celebrity friends have been rallying around her.
Louis revealed last week that he would 'love' to have her at his judge's houses round for the new series, and Simon Cowell said he will work with her again.