The Auditor General was arrested last night as the investigation into leaked documents alleging corruption at the Bermuda Housing Corporation took a new twist.

Larry Dennis spent the night in custody at Prospect Police Station following a raid by detectives on the Office of the Auditor General.

Flanked by four plain-clothed detectives and three uniformed officers, Mr. Dennis was escorted out of Victoria Hall at 7.15 p.m. and into the back of an unmarked Police car.

Three boxes — one sealed with orange tape marked ‘Evidence’ — were placed in the boot of the vehicle.

A source said last night that the raid was carried out in connection with the BHC investigation.

Police descended on the offices of the Government fiscal watchdog at 3.45 p.m. yesterday. Uniformed officers stood guard in Reception while detectives carried out a search of documents in offices to the rear.

Even the cleaner was turned away as detectives — one wearing forensic latex gloves — carried out a three-and-a-half hour investigation. Bemused staff refused to comment as they left the offices at 5.30 p.m. Then at 6.45 p.m. a young man dressed in blue T-shirt, khaki shorts and white trainers carried a white sealed cardboard box from the City Hall car park into the building, accompanied by Mr. Dennis’s wife, Nancy.

The young man — a family relative — handed the box to waiting detectives and left immediately, as Police took the box into offices at the rear. Last night another source claiming to be “a friend of the family” said that Mr. Dennis had been threatened with imprisonment unless he produced documents connected with the BHC inquiry.

The anonymous caller said: “Mr. Dennis asked his wife to bring the papers in as the threat was used that the Police would put him in jail unless he released the papers. He called and asked her to bring them to the office.”

The source claimed: “They’re just getting at him to get at the Governor.”

At 7.15 p.m. Mr. Dennis was escorted out of his Victoria Street offices by detectives. They carried the cardboard box plus a similar box sealed with orange tape and a black plastic crate.

A Police spokesman said last night: “There is no comment at this time.”

However, Mr. Dennis’s wife confirmed her husband was under arrest. She told The Royal Gazette: “He is spending the night at Prospect Police Station but I really don’t know anything more.”

Mrs. Dennis said it was only after 10 p.m. that she learned of her husband’s arrest. “I didn’t know what was going on, it was a shock,” she said. The Office of Auditor General oversees the Government’s fiscal conduct. His position is guaranteed under the Constitution and he reports directly to the Governor.

Last night a Police spokesman said two men arrested on Thursday in connection with the leaked BHC files have been released on Police bail. He would not comment further. The documents — leaked to the Mid Ocean News — claimed that Premier Dr. Ewart Brown, former Premier Jennifer Smith and former Ministers Renée Webb and Arthur Hodgson were investigated by Police during inquiries into allegations of corruption at the Bermuda Housing Corporation.

When the investigation ended in 2004, then acting Director of Public Prosecutions Kulandra Ratneser said some of those investigated could only be accused of bad ethics and that some escaped prosecution due to Bermuda’s antiquated corruption laws.

Since the BHC scandal — which has cost taxpayers $8 million — one person has been convicted. Terrence Smith, a BHC officer, was jailed last year on 41 counts of fraud.