MP Jared O'Mara has been arrested on suspicion of fraud, according to reports.
The Sheffield Hallam MP, who sits as an independent after resigning the Labour whip last summer, had already announced that he will stand down as an MP in September after a series of controversies.
The MP was arrested last Friday while his constituency office was searched and electronic equipment confiscated, according to the BBC and the Daily Mirror. His chief of staff, Gareth Arnold, was allegedly arrested on suspicion of conspiracy to commit fraud.
They were reportedly released on Saturday pending further enquiries. South Yorkshire Police declined to comment.
Mr O'Mara announced last month that would would step down as an MP after allegations of sexual misconduct towards a member of staff. He said he would be seeking help for "mental health and personal issues", adding: "I'm not well and am in the process receiving medical help. I am not in any fit state to continue and nor would that be appropriate if I was."
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The MP apologised "to my constituents, the people of Sheffield and the people of the UK as whole."
It came weeks after Mr Arnold accused him of treating his constituents with "inexcusable contempt".
In an astonishing attack posted on Mr O'Mara's Twitter page, Mr Arnold wrote: "Sheffield Hallam deserves so much better than you.
"You have wasted opportunities which people dare not to even dream of."
He was also accused by a young female staff member of sending her "wildly inappropriate” messages and frequently making misogynistic comments, including claiming that "“people should call women c***s more".
He also reportedly claimed that the Liberal Democrats' candidate in his seat, 35-year-old Laura Gordon, had "repressed sexual feelings" for him.
Responding to reports of Mr O'Mara's arrest, a spokesperson for Sheffield Hallam Liberal Democrats said: “We have been calling for the resignation of Jared O’Mara for a long time. With crucial votes coming up in Westminster, the people of Sheffield Hallam need an MP they can count on to fight Boris Johnson’s Brexit plans and to stand up for local communities.”
The MP was suspended by Labour in 2017 after being accused of calling a female constituent an "ugly b****" and referring to some women as “sexy little slags”.
He was reinstated several months later but decided to resign the party whip shortly afterwards, claiming he had been "made to feel like a criminal" by the party and suggesting that Labour did not share his "commitment to the true definition of equality and compassion".