Auditor General Larry Dennis has threatened to sue Labour and Immigration Minister Derrick Burgess for libel.

He has instructed his lawyer Alan Dunch to act over comments Mr. Burgess made at a PLP rally last week, in which the Minister accused Mr. Dennis of criminal conduct.

Mr. Burgess alleged Mr. Dennis received stolen goods in reference to a leaked police file about allegations of corruption at the Bermuda Housing Corporation.

Mr. Dunch said: "The Auditor General is obviously distressed and quite rightly so at the comments that the Minister made at the PLP rally, as reported in The Royal Gazette. As a consequence he's instructed me to write to the Minister placing on record the Auditor General's concerns about those remarks. He's asking to have them retracted and an apology for those remarks.

"The Auditor General is of the view that the remarks were undoubtedly made in the heat of the moment, and feels that with the benefit of the mature reflection we all know that the Minister is capable of, he could well conclude that his remarks were at best unfortunate and certainly remarks that he ought properly to back away from and convey his apologies for."

Options if this is not forthcoming include the possibility of a libel suit, confirmed Mr. Dunch.

Asked about the potential legal action last night, Mr. Burgess said: "That's OK, that's fine. I have no comment whatsoever. He can do what he wants, it's OK."

The Auditor General – the Island's independent financial watchdog – has seen his office raided twice this year by Police hunting the missing dossier. In the first swoop on June 18, Police also searched his home and detained him for 24 hours in custody.

Mr. Dennis was arrested on suspicion of handling stolen goods, an allegation he has always denied. The other man to be arrested on suspicion of handling the alleged stolen BHC file was 'Son of the Soil' Harold Darrell.

Yesterday, both Mr. Dennis and Mr. Darrell had their bail lifted, after detectives were said to have "exhausted their inquiries" into the missing dossier.

Both men arrived separately at Hamilton Police Station at 10.50 a.m., accompanied by their lawyers. Mr. Darrell was called in for questioning at 11 a.m., and Mr. Dennis interviewed separately 20 minutes later. Just over two hours later, at 1.30 p.m., the Auditor General was released. Mr. Darrell walked out of the Police station 45 minutes later.

A Bermuda Police Service spokesman last night confirmed: "Two persons who have been on Police bail as part of the inquiry into the stolen BHC document were today further interviewed by Police and subsequently released from Police bail.

"Inquiries into the theft of the BHC documents are ongoing."

Mr. Dunch, acting for Mr. Dennis, said: "As far as we're concerned, the matter is now at an end.

"Mr. Dennis is now hoping he can get on with his personal and professional life without further Police intervention.

"The Police investigation is continuing but they have exhausted their inquiries of Mr. Dennis.

"We will be making an appropriate application in due course to the Commissioner of Police for the return of all papers seized from the Auditor General's office."

Both Mr. Darrell and his lawyer, Rick Woolridge Jr, declined to comment yesterday.

Whistleblower Mr. Darrell has refused to disclose how documents from the Police BHC file came into his possession. In The Royal Gazette's sister paper, the Mid-Ocean News, on November 16, he said: "I gave parts of the Police dossier to the Press so that they could inform the public of two things – the Government officials identified by the Police as the wrongdoers in this scandal, and also the apparent cover-up of the investigation by higher authorities."

Extracts from the file were broadcast on ZBM television news on May 23 and printed in the Mid-Ocean News on June 1. Attorney General Philip Perinchief and Police Commissioner George Jackson then applied for an injunction to prevent publication of further details from the file.

The bid to gag the media went all the way to Bermuda's highest court – the Privy Council in London. On October 29, Law Lords ruled against an injunction in favour of the media.

The missing Police dossier reports that Premier Dr. Ewart Brown and former Premier Jennifer Smith were among the public figures investigated by Police examining allegations of corruption at the public housing quango.

When the BHC probe ended in 2004, then acting-Director of Public Prosecutions Kulandra Ratneser said some of those investigated could only be accused of bad ethics due to Bermuda's antiquated corruption laws.

Only one person has ever been convicted in the scandal, which is said to have cost taxpayers $8 million. Terrence Smith, a BHC Property Officer, was jailed last year on 41 counts of fraud. However, his conviction of defrauding the BHC of $1.2 million was quashed in the Court of Appeal on Thursday. Smith will now face a retrial.

The Bermuda Police Service has enlisted the US Secret Service and Scotland Yard in its investigations into the missing BHC file, claiming it was stolen.

Mr. Dennis' Victoria Hall offices were raided for the second time on November 16. He told The Royal Gazette at the time: "There were so many Police officers there I thought maybe he (the Commissioner of Police) needs to call up the Regiment and have them come in there. It was an over-display of power."

Mr. Dennis, 63, claims he never handled any of the original files – only copies, and that he has no connection to Mr. Darrell. Last night, he told The Royal Gazette: "I never expected the Police would be the arbiter and judge on this matter. Had the courts said I had to give up this information, I would have readily done so.

"I had no problem giving up the documents, but I feel the Police didn't consider my Constitutional position. I don't think it was given the consideration it should have.

"I feel very empty. The situation has left me disillusioned with the Police and with the system. You could say I'm relieved, but I didn't expect them to get anything out of this. I never thought they would find anything."