Hassan Butt, who claimed to renounce extremism, suspected of defrauding buyers on auction website to fund terrorism

A man who claimed to be an al-Qaida insider but then said he had made it up has been arrested on suspicion of perpetrating a £1m-plus fraud on eBay to fund terrorism.

Hassan Butt, 35, is accused of conning thousands of customers by taking orders for iPhones, iPads and games consoles on the online auction site and then failing to deliver them.

Butt, a former spokesman for the extremist group of al-Muhajiroun, claimed to have helped send scores of Britons to terrorist training camps overseas, including Mohammad Sidique Khan, the ringleader of the 7 July 2005 attacks on London.

But after the attacks on the capital, Butt said he had seen the error of his ways and publicly spoke out against extremism. He featured heavily in the media and was even invited to meet a government minister to discuss ways to combat terrorism.

However, he later claimed that he lied about his jihadi past telling the media what it wanted to hear.

He was arrested in Manchester in September in relation to a company called Mi Genie, which sold electronic goods on eBay in the run up to Christmas 2014. It had been on the sites since 2012, predominately selling knitwear, but began selling high-end devices including iPhones for £500 during the festive season.

Hundreds of customers complained they had not received goods they had paid for, and attempts to contact the company had proved futile. The company’s eBay account was eventually shut down and police were contacted.

Another man, believed to be Butt’s business partner, was also arrested on the same day in nearby Bury, Lancashire. Both men were bailed last week.

A Metropolitan police spokesman said: “Two men arrested on Wednesday 23 September 2015 by officers from the Metropolitan police’s counter terrorism command (SO15), supported by colleagues from Greater Manchester police, on suspicion of conspiracy to commit fraud appeared on police bail on 18 November and were further arrested on fraud offences.”

An eBay spokesman said: “No customer was left out of pocket. We refunded every customer in full at the time of the event. We have dedicated in-house detection teams and alert systems in place to identify suspicious behaviour very quickly.

“Our teams share information with law enforcement agencies around the world to keep our marketplace safe for customers.”