A holiday home in Connemara is at the centre of a growing row in America involving a prominent Democrat politician, a convicted insider trader and the former president Bill Clinton.

The purchase of the home by Senator Christopher Dodd is being examined by the US Senate ethics committee after allegations that Edward Downe Jr, a businessman convicted of insider trading, acted as a “middle man” in the deal.

Eight years ago Dodd, who ran for the Democratic presidential nomination against Barack Obama, lobbied Clinton, the then president, to grant Downe a pardon. This has prompted further questions about the financier’s involvement with the Galway house.

Dodd bought a one-third share of a 10-acre property on the island of Inishnee, near Roundstone, in 1994 for $53,000 (about €41,000 at today’s rate). He is still a regular visitor there. William Kessinger, a business partner of Downe’s, purchased the remaining two-thirds for $107,000. Downe witnessed the transaction and signed the deed.

Questions have now been raised about Downe’s role, by both journalists and Republicans in Connecticut, the state Dodd represents. The year before Dodd bought the Galway property, Downe pleaded guilty to insider trading and agreed to pay the government $11m in a settlement. In 2001, near the end of Clinton’s term of office, Dodd successfully lobbied the White House for a pardon. Unusually, the pardon wasn’t first sanctioned by the US Department of Justice.

In 2002 Kessinger sold his two-thirds share of the property to Dodd for $127,000, a profit of only $20,000 from an eight-year period during which property prices doubled in Roundstone, a popular second-home location with rich Dubliners.

Dodd said the price agreed between himself and Kessinger was based on a “recent valuation”. In financial-disclosure documents after his outright purchase of the property, Dodd claimed that the 1,700 sq ft house and surrounding land was worth between $100,000 and $250,000. At the time, similar properties in Roundstone were selling for more than twice this figure.

John Moore, an Irish business partner of Downe’s, also lobbied Galway county council to approve a planning application by Dodd to extend and renovate the property soon after it was bought in 1994.

Moore said: “I didn’t write to the council on behalf of Edward Downe. I was involved with Galway Chamber of Commerce at the time and had got to know Senator Dodd. I asked the council to look favourably on his planning application because I thought he might be able to help attract US businesses to Galway. ”

The deal between Kessinger and Dodd has attracted attention in America because of its similarity to another property transaction involving the pair that has also come under scrutiny. In 1986, they purchased a condominium in Washington for $159,800. A little over three years later, Downe transferred his share of the property to Dodd, who later sold it for $310,000.

Dodd is already under investigation for receiving what a former mortgage broker claims was preferential treatment from Countrywide Financial, one of the largest sub-prime lenders in the US, on two re-mortgage deals in 2003. Dodd denies that he received “special treatment”.

Last week The Wall Street Journal questioned why Kessinger handed over his share of the Connemara property “for a song” and called on Dodd to reveal what role Downe might have played as a “middle man”. Kevin Rennie, a former Republican state legislator in Connecticut, said that controversy surrounding Dodd’s Irish holiday cottage was damaging his hopes of re-election.

“He is on the Senate banking committee and is a very vocal critic of Wall Street excess. But these latest allegations show that he had very close ties to a number of controversial figures,” he said.

A spokesman for Dodd said Downe never had a financial interest in the purchase of the Roundstone property.

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