A Liberal Democrat has quit as the party's general election candidate after apparently claiming to an undercover reporter posing as a wealthy Indian businessman that he could cheat party funding rules, and even introduced his "funder" to Treasury Chief Secretary Danny Alexander.
Ibrahim Taguri is reported to have suggested an undercover Daily Telegraph reporter could channel donations via family members and backdate cheques to avoid appearing on public registers.
The party's former chief fundraiser - who had been selected to fight the Brent Central seat on May 7 - was also said to have promised big donations could "open doors" and introduced the fake donor to key party figures including Alexander.
Bizarrely, Taguri intends to fight the election as an independent but said he hoped to return to the party fold after clearing his name. A party spokesman said it had referred the matter to the Electoral Commission and denied accepting any improper or illegal donations.
Taguri, who has also stepped down as the Lib Dem race equality champion, denied any wrongdoing and said he was "confident that I will be exonerated of all the claims made against me".
The undercover reporter was able to secure meetings with senior figures including Alexander after giving several thousand pounds and promising far more.
He was introduced to senior figures such as former leader and election campaign chief Lord Ashdown, taken to Nick Clegg's office and attended a dinner for major party benefactors where he met Mr Alexander, the newspaper said.
The fake donor is alleged to have been told by Mr Taguri that he could channel a donation via a "cousin" after explaining that he wanted to remain "discreet" about his financial support.
He went on to hand over a cheque for more than the £7,500 threshold beyond which donations must be publicly registered with the Electoral Commission.
Commission guidance, issued in 2007 in the wake of a scandal of "proxy" donations to Labour, says giving money via a third party "must not be used as an attempt to evade the controls on permissibility and transparency".
Mr Taguri told the newspaper he had not cashed the cheque, would have declared it according to the rules and believed the "cousin" referred to by the fake businessman had been giving his own money.
"I have been as transparent as I possibly can," he said.
He was also reported to have boasted that the party could be "very, very helpful once they know you are helpful" and suggested contacts that could be useful for dealing with particular issues raised by the supposed donor.
But he insisted he was only offering information to the reporter that was already available publicly and would have withdrawn himself from any possible conflict of interest if elected in May.
A party spokesman said: "The Liberal Democrats have not accepted any improper or illegal donations. The party had not received the donation in question and if we had it would have been subject to a series of checks and procedures to ensure it met all legal requirements.
"We firmly reject any suggestion that Danny Alexander or any other Liberal Democrat parliamentarian has acted in any way improperly.
"Ibrahim Taguri has rightly stood down as the Liberal Democrat candidate for Brent Central and from any formal role within the party.
"We have now referred this matter to the Electoral Commission to determine whether any wrongdoing has been committed."
In a statement, Taguri said: "I want to ensure that Liberal Democrats are returned to government in the next general election. I believe that Britain will only have both a stronger economy and a fairer society with Liberal Democrats in government.
"That is why while these investigations are taking place, I will step down as Liberal Democrat Race Equality Champion and Parliamentary Candidate for Brent Central.
"I am happy to co-operate with any investigation and I am confident that I will be exonerated of all the claims made against me. Not only do I deny the allegations made against me I am capable of demonstrating that I have gone above and beyond the legal requirements in the interests of transparency.
"I will continue my campaign to become the next MP for Brent Central as an independent candidate with the intention of achieving the one thing I entered politics to do, to end child poverty in the UK by 2020.
"I look forward to clearing my name and returning to the Liberal Democrats. I want to send a huge thank you to everyone who has supported me so far and I will continue to stand up for anyone in Brent Central who needs help."
Lib Dem former leader Lord Ashdown, who is the party's general election co-ordinator, said it was a "serious allegation and we are treating it very seriously", but he insisted the party had done "nothing illegal or improper".
"We have not received any cheques, we have not banked any cheques," he told BBC Radio 4's Today programme.
"It is commonplace and it is common practice among all the parties for donors to meet with senior officials. That is what happened on this occasion, that is all that happened and any suggestion that anything more than that happened on this occasion is wrong."
Turning to the specific claims about Taguri, the peer said: "I have reviewed this evidence as the chairman of the general election (campaign). It is partial evidence, we haven't seen all the tapes, we haven't seen the context. But it is quite clear there are serious questions for Mr Taguri to answer,
"It would be quite improper for us ... if we investigated this ourselves. It must be done by an independent third party.
"The organisation charged with doing that is the Electoral Commission. We will now present them with all the evidence we have to hand. Mr Taguri will make himself available to the Electoral Commission. We will abide by any determination or conclusion that they reach."
Asked whether he thought Taguri should be standing as an independent, Lord Ashdown said: "That's his choice ... he needs to understand that if he stands as an independent and then the party puts a candidate up in Brent, which I imagine we will, he will have to resign or be removed from the party membership if he did."
Lord Ashdown also said he would not be campaigning for Taguri.
"I have got a very busy programme, I doubt I am going to be doing much campaigning ... but I will support anybody who is a Lib Dem and nobody who is not a Lib Dem. That seems pretty obvious," he added.