Canoe conman John Darwin freed from jail

John Darwin, the canoeist who became famous after faking his own death, has been released from jail and is living a few miles from his former home.

Days after he was released from Moorland open prison, his former neighbours were amazed to see the notorious fraudster strolling along the same beach where he had staged his death.

"He's been up and down the beach already, walking a dog. It was early morning. He must be staying nearby," said the owner of the Ocean View guest house in Seaton Carew.

Darwin vanished in March 2002 after paddling out to sea in his home-made canoe. His wife, Anne, a former doctor's receptionist, played the grieving widow – but it later transpired that the pair had concocted the elaborate hoax to claim £250,000 in insurance and pension funds.

It was not until Darwin returned to Britain five years later claiming amnesia and a photograph of the happy couple living in Panama emerged that the fraud began to unravel and they were jailed.

The 60-year-old walked free from the prison in South Yorkshire this week after serving less than half his sentence and was believed to be staying in Easington, County Durham, 13 miles from Seaton Carew, where he disappeared in 2002. "He is living with a family friend," a source said. "Where he is staying has been pre-arranged."

Darwin's aunt, Margaret Burns, said yesterday: "I hope he's not staying with a friend. He had only one as far as I knew and that poor soul had to tell people he'd died after being washed out to sea. He should keep himself to himself and not ruin any other people's lives."

Speaking from her retirement bungalow in Blackhall Colliery, she added: "Everybody's been asking me what I expect to say to John when I see him walk up my drive – but I have not heard from him nor seen him for 40 years so I don't expect that day to come any time soon. I'd probably tell him he's missed some good jokes at his expense while he's been away."

The former prison officer was sentenced to six years and three months in prison in July 2008, after admitting seven charges of obtaining money by deception and a passport offence. His wife, who is due to be released in two months, was sentenced to six-and-a-half years after being convicted of 15 counts of fraud.

The couple, who had a property portfolio of 12 homes but were struggling to make mortgage repayments, hatched the plan to fake his death and deceive not only the police, a coroner and financial institutions, but even their sons Mark and Anthony.

At one point Darwin lived secretly in a bedsit next to the family home, using the assumed identity of John Jones he had taken from a local child who died in infancy. In October 2007, Mrs Darwin settled her affairs in the UK, having sold off the family's properties, and joined her husband in Panama. Before long, Darwin flew back to the UK and handed himself in at a central London police station, claiming he was suffering from amnesia. His wife pretended to be shocked at his return from the dead.

Her story collapsed when a photograph was found on the internet showing the smiling couple in the office of a Panama estate agent. Her defence of "marital coercion" was later undermined when the prosecution produced loving emails the couple had exchanged.

Cleveland Police said they were keen to ensure that Darwin does not cash in on his infamy, as he is said to be eager to publish his memoirs. A spokeswoman for the force said if that were to be the case, his assets could be reassessed and seized.