Police in Iowa believe they have finally solved the four-year mystery surrounding a £9 million lottery win, after arresting a former Lotto employee for fraud.

Eddie Raymond Tipton, who worked as the director of information security at the Multi-State Lottery Association, is believed to have illegally bought a lottery ticket that went on to win, and then asked someone else to help him claim it.

Employees are prohibited from buying tickets or claiming prizes and the 51-year old now faces two felony counts of fraud and could face up to five years in jail if convicted.

The case began back in 2010 when authorities attempted to track down the owner of the winning ticket. In 2011, hours before the one-year deadline, a lawyer in New York finally claimed the prize, but then later withdrew his claim after he could not answer simple security questions.

It's "a story that could be headed for Hollywood, it's so unbelievable", according to local news station KCCI. In the early stages of the investigation, police feared that blackmail or even murder could have been at the heart of the case, ABC reports.

"The possibilities of what could have occurred here really are endless," said Iowa Lottery spokeswoman Mary Neubauer. "It could have been as serious as someone being killed, or someone being blackmailed. It's all within the realm of possibility. The whole situation is just strange."

Police now believe they have solved the case after a co-worker identified Tipton in CCTV footage showing the sale of the ticket. He denies having ever bought the ticket and claims that he was in Texas at the time. However, phone records prove he was in town the day the ticket was bought, say police.

Terry Rich, the president of Iowa lottery has described the case as one the strangest ever seen in lottery history. "We believe this is the largest lottery jackpot ever to be claimed, only to have that claim withdrawn," he said.