Martin Edwards, the former chairman of Manchester Utd, was arrested as part of a money-laundering investigation involving the Liberal Democrats' controversial backer, Michael Brown, who is currently in Spain awaiting extradition to the UK.
Police arrested Mr Edwards at the beginning of this month and later released him on bail. However, he has not been charged and has since been released from his bail conditions after the money-laundering unit of the City of London Police wrote to him confirming they now believe him to be the victim of fraud.
"I'm not the guilty party,"Mr Edwards said. "I've been through a pretty awful time. I'm not being charged and they think I am the victim of investment fraud." Mr Edwards, who appointed Sir Alex Ferguson manager of Man Utd and left the club in 2000, added that he was unable to comment further.
Mr Edwards is one of four investors involved in a complex action that includes Mr Brown and HSBC, first revealed in these pages in October. The banking giant started legal proceedings against Mr Brown and his company, 5th Avenue Partners, last autumn and had his assets frozen.
The case is understood to revolve around $45m (£25m) invested in Mr Brown's companies by four individuals: Kevin So, Yan Lucy Lu, Robert William Mann and Mr Edwards.
The bank was initially concerned that the funds were not being used for the purposes they were intended, but the investigation has since widened to consider criminal charges.
Mr Brown works in London but lives in Majorca; he left the UK for Spain before Christmas. HSBC subsequently approached the Crown Prosecution Service to obtain a warrant for his arrest on charges of perjury, perverting the course of justice and forgery, which were alleged to have taken place during the trial.
The CPS said that in the process of assessing the application, "a couple of other offences came to light". These are making a false declaration to obtain a passport and obtaining a passport by deception. Mr Brown was arrested on Friday, his 40th birthday. He will not be appealing and is keen to return to the UK to defend himself.
The CPS will start criminal proceedings for the two alleged passport offences, and is also considering whether to pursue the other allegations. The HSBC civil litigation, meanwhile, will also continue, and Mr Brown could face a further investigation into money-laundering charges, said one insider.
Little was known about the Scottish financier until he gave the Lib Dems £2.4m to fight the last general election. He later withdrew his backing, dubbing the party "muppets".
"In January of this year, HSBC commenced criminal proceedings against Michael Brown for perjury, forgery, false accounting and perverting the course of justice," a bank spokesman said. "These are clearly serious matters and it would not be appropriate for HSBC to comment at this stage."
"The words 'money laundering', 'crime', and 'fraud' get brought in by solicitors," said a source close to Mr Brown. "It covers a multitude of issues. The police haven't got any problem with Michael whatsoever."