West Midlands MEP Nikki Sinclaire has been arrested on suspicion of conspiracy to defraud the European Parliament.
The MEP was arrested and bailed with three other people yesterday as part of a probe into expenses by West Midlands Police.
Properties have been searched by officers investigating an allegation made in 2010 over the use of allowances and expenses.
Ms Sinclaire, 43, was elected as a UKIP MEP in June 2009 and came third in the contest to succeed Nigel Farage as party leader later that year.
But she had the whip withdrawn in 2010 for refusing to sit with the party's Italian allies Liga Nord in the European Parliament. Ms Sinclaire, a lesbian, said the party were homophobic.
She won a claim for sex discrimation against her former colleagues at an employment tribunal and now sits as an independent.
A spokesman for West Midlands Police said: "Officers from West Midlands Police Economic Crime Unit arrested four people yesterday on suspicion of conspiracy to defraud the European Parliament.
"Two women aged 55 and 39 and a man aged 19 were arrested at addresses in Solihull, Worcester and Birmingham and were taken to a police station for questioning. A 43-year-old woman was later arrested at a police station in Birmingham.
"All four have since been released on police bail.
"Searches have been carried out at the addresses involved by officers conducting an investigation into an allegation made in 2010 regarding allowances and expenses."
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