Liam Fox personally approached a prominent venture capitalist to ask him to help bankroll a company run by his friend Adam Werritty, it was claimed.
Jon Moulton said last night that following last year's general election he was asked by Dr Fox to provide funds to the firm, called Pargav, which he was told was involved in "security policy analysis and research".
According to a report yesterday in The Times, Pargav Ltd was set up as a not-for-profit company by Mr Werritty and was used to fund his jet-set lifestyle following Dr Fox on international engagements around the world.
Other backers were said to include a property investor involved in promoting Israel, and a corporate intelligence company with a close interest in Sri Lanka.
In a statement issued following Dr Fox's resignation, Mr Moulton said: "Before the last election I had made several, on the record, donations to support Dr Fox following a request to do so from a Conservative Party fundraiser.
"After the election I was asked by Dr Fox to provide funds to a non-profit group called Pargav involved in security policy analysis and research and after obtaining written assurances as to its activities I provided personal funding to Pargav.
"Neither I, nor any of my associates, have sought or received a benefit of any form from Pargav. I have not received an account of Pargav's activities, nor have I been involved at all with Pargav, since funding. I will not be doing this again."
It was not clear whether the prospect that the claims that Dr Fox sought funds for Mr Werritty's company were about to surface played any part in his decision to stand down.
According to The Times, £147,000 was paid into Pargav's bank account.
Earlier this week, Dr Fox told the Commons that although Mr Werritty - his best man and former flatmate - had joined him on 18 overseas visits since he became Defence Secretary, he was "not dependent on any transactional behaviour to maintain his income".
A spokesman for one of the reported donors to Pargav - the investment company Tamares Real Estate - confirmed yesterday that it had paid £3,000.
Tamares is owned by Poju Zabludowicz, the chairman of Bicom- an organisation which promotes understanding of Israel in Britain.
The spokesman said that Mr Zabludowicz had made the payments in order to support Pargav's work promoting peace in the Middle East - including arranging round table dialogues.
He said that Pargav appeared to be a continuation of one of Mr Werritty's previous companies, Security Futures, which was dissolved last year.
"Poju made a contribution to Security Futures for its peace promotional work and the latest invoice came in from Pargav. He understood it to be a continuation of that organisation's activities," the spokesman said.
Pargav is listed as having an office in Goswell Road in Clerkenwell, north London, although there appears to be no telephone number listed.
According to The Times, Pargav's sole director is Oliver Hylton - a charity adviser to the CQS hedge fund and a former director of Security Futures.
CQS's chief executive, Michael Hintze, is reported to have given Mr Werritty a desk and telephone line at the firm's London offices to run another organisation, Atlantic Bridge, which was wound up earlier this year after losing its charitable status.
Mr Hylton told The Times that Mr Werritty had asked him to become a director of Pargav in June last year.
"He came into my office and said I want to set up a new company. It sounds ridiculously naive in hindsight but I agreed. I signed the documents and nothing more," he said.
He added that he had regarded Mr Werritty as "an adviser of some sort" to Dr Fox.
"Anything he did was for the good of Liam Fox and supporting his office," he said.
According to the Daily Mail, Mr Moulton bought a British defence company eight months before he paid funds into the not-for-profit company that helped fund Mr Werritty's travels.
In February 2010, Mr Moulton reportedly paid £60 million for Gardner UK, which makes components for aircraft including RAF fighter jets and troop transporters.
He reportedly gave a sum of up to £35,000 to Pargav in October of that year.