The Liberal Democrats could be forced to surrender a record gift of £2.4 million after a police investigation discovered that the party’s biggest donor was a bogus businessman.

The Electoral Commission says that it will reopen its investigation into the donation by 5th Avenue Partners Ltd after its founder, the flamboyant conman Michael Brown, was convicted of stealing millions of pounds yesterday.

Brown, 42, whose private jet flew Charles Kennedy around Britain at the last general election, remains on the run after jumping bail. He has changed his name and grown a beard.

Anti-sleaze laws forbid political parties from accepting corporate donations unless the companies are actually “carrying on business”.

But Brown’s 5th Avenue Partners was “just a sham”, Detective Sergeant Nigel Howard, of City of London Police’s Economic Crime Department, told The Times. “It’s just a company that didn’t trade in anything. He just had it as an off-the-shelf company. It sounded good but he never actually traded in any bonds.”

The company, with its blue-chip name, formed part of a lavish façade erected by the garrulous Glaswegian to fool rich investors into trusting him.

“It’s part and parcel of the offence,” Mr Howard said. “It’s part of the thing about him having a chauffeur and being a member of the Caledonian Club and working from fancy offices in Mayfair. It’s part of the persona. 5th Avenue sounds very prestigious.” Brown was found guilty in his absence of theft, furnishing false information and perverting justice.

Brown had a $4 million (£2.6 million) private jet, a £49,000-a-year flat in a prestigious part of London, a Range Rover with the number 5 AVE and a yacht, Southwark Crown Court heard. He spent £7,000 on fine stationery from Smythson of Bond Street and £327,000 on an entertainment system for his villa on Majorca. He donated £100,000 to upgrade the library at his gentlemen’s club in Belgravia.

The political donation was another status symbol, according to prosecutors, because it made him seem important and well connected.

By the 2005 general election, the Lib Dems found themselves reliant on a benefactor whose head company was in Zug, the Swiss town famous for its fruitcakes. The party spent the lot on its campaign, winning a record 62 seats.

The Lib Dem hierarchy persisted in defending Brown even after an investigation by The Times disclosed that he had a police record in America, where he was wanted for jumping probation.

Yesterday Nick Clegg, the Lib Dem leader, said: “We took that money in good faith, everyone recognises.

“It has been recognised that we did all the due diligence checks we could have done, totally unaware of the crimes of which Michael Brown has now been indicted. Beyond that, I can’t comment.”

On top of the risk that the Electoral Commission will make the Lib Dems surrender the £2.4 million to the Treasury, one of Mr Brown’s investors is suing the party in the High Court. Robert Mann, a Los Angeles lawyer, has issued a writ demanding £683,000 from the Lib Dems claiming that they allowed their desire for the windfall to overcome any doubts about its source.

Although Brown claimed to have gone to Gordonstoun and St Andrews, he went to a local school and did a City and Guilds in catering at Glasgow College of Food Technology. He boasted that he was the son of a lord, that he made regular visits to Buckingham Palace to see the Duke of York and was an experienced bond dealer. In fact, he failed his maths O level and was not good at paperwork, the trial heard.

Brown was accused of conning Martin Edwards, the former Manchester United chairman, out of £8 million by posing as an experienced international bond trader. As his lies unravelled, Brown sent e-mails claiming that he was dying of cancer. In reality, he was preparing to flee. He took the surname Campbell-Brown and stopped shaving before he disappeared in June.

Jamil Ahmud, Brown’s solicitor, spoke to Brown yesterday and said that he would be appealing. The lawyer denied knowing where his client was hiding: “I can have my own private thoughts but it’s nothing conclusive.”

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