Sydney collar-bomb suspect is arrested by Kentucky Swat team

Police are investigating business links between Mr Peters and the firm where Ms Pulver's father is chief executive

When it turned out that the collar bomb was a fake and the extortion note alluded to a character in an obscure novel, many Australians suspected the ordeal that a Sydney teenager was subjected to a fortnight ago was a schoolboy prank.

With the arrest of an Australian businessman in Kentucky yesterday, that theory appears to have been torpedoed. Although the motives behind Paul Peters' alleged targeting of the wealthy family of 18-year-old Madeleine Pulver are not yet clear, the incident has taken on a new air of seriousness.

Mr Peters, 50, who was held at his ex-wife's house in Louisville by an armed FBI Swat team acting in conjunction with New South Wales police, was an executive with a Sydney-based financial services group, Allco, which folded in 2008. Police are investigating links between him and the international software company, Appen, of which Ms Pulver's father, Bill, is chief executive. Ms Pulver endured 10 hours of terror after a masked intruder entered her home in the prosperous suburb of Mosman and strapped what he said was a bomb to her neck.

She telephoned her father, who contacted police. It was only after painstakingly removing the device that bomb-disposal experts were able to ascertain that it contained no explosives.

The mystery deepened when it emerged that a note left pinned to Ms Pulver's chest made reference to Dirk Struan, a ruthless businessman in James Clavell's 1986 novel Tai-Pan. Australian media noted that the book was on the recommended reading list for pupils at Sydney Church of England Grammar, attended by Ms Pulver's brothers and some of her male friends.

That line of speculation was quashed as officers with machine guns descended on suburban Louisville yesterday. Australian police, who will seek extradition, said the note contained financial demands and instructions to contact Mr Peters, who has three children. He will be charged with kidnapping, breaking and entering, and demanding property with menaces.

Australian authorities used an email account attached to the fake bomb to track down Mr Peters, who, according to police, flew out of Sydney five days after the incident. Mr Peters was managing director of Allco's Malaysia branch. The company was listed on the Australian Stock Exchange. He has also worked for other businesses and reportedly lived at one time in Hong Kong, the setting of Tai-Pan. Recently he has divided his time between Australia and the US.

Mr Pulver and his wife Belinda said the family was "enormously relieved" by the arrest, but remained mystified.