A Scottish financier who was the single biggest donor to the Liberal Democrats after giving the party £2.3m used money fraudulently obtained from a former chief executive of Manchester United, a court heard yesterday.

Michael Brown, 42, promised annual returns of up to 50 per cent to rich clients who invested in his bond-trading business based in Mayfair, London. Instead, it is alleged, their money was used to fund the lavish lifestyle of a multimillionaire – and Britain's third largest political party.

A jury at Southwark Crown Court heard that in his efforts to portray himself as a "wealthy and influential man", Mr Brown, who is being tried in his absence, made a series of donations in 2005, including the gift to the Liberal Democrats in the months before that year's general election. The donation was the biggest in the history of the party, which at the time was led by Charles Kennedy.

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Martin Edmunds QC, for the prosecution, said that far from being Mr Brown's own money, the payment was directly funded from $10m (£6.5m) invested in the Glasgow-born traders' financial business by Martin Edwards, the former chairman and chief executive of Manchester United, who made a substantial fortune when he sold his interest in the football club in 2000.

The contribution to Liberal Democrat coffers was just one example of Mr Brown's largesse with clients' cash, which included the purchase of a Range Rover with a personalised number plate, a £300,000 entertainment system for his villa in Majorca and a £2m private jet, the court heard.

Mr Brown, who operated from Spain and London, told investors he would use his investment vehicle, Fifth Avenue Partners Ltd, to trade in A-rated bonds and gave a guarantee that their capital would not be touched. He offered profits of 36 to 50 per cent.

But the jury was told the allegedly bogus trader did not carry out a single transaction. Instead, the money provided by clients was used to make "profit" payments to other investors, as well as funding his lifestyle and business expenses, which included a flat and offices in Mayfair costing £106,000 a year in rent. Renovations to the office in Upper Brook Street, close to the American embassy, cost £237,000 and included the purchase of the Range Rover complete with a £35,000 number reading "5AVE", after his company.

Mr Edmunds said: "Mr Brown never had any intention of trading in bonds. His representations to Mr Edwards were all just lies to get hold of his money. He then used the money to create the illusion he was trading. Money comes in, money comes out, apparently to pay pretend profits on these pretend bond deals that never actually took place, and apparently to pay for Mr Brown's extravagant lifestyle, his business expenses and donations."

The jury was told that the financier had chosen not to attend the start of the month-long trial but that his actions should not be seen as an admission of guilt.

Mr Brown denies nine charges, including the theft of more than $11m between February and May 2005, and laundering his clients' money. He is also accused of attempting to pervert the course of justice by seeking to persuade Mr Edwards to drop a criminal complaint against him when the alleged fraud was uncovered.

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The court heard that at the height of his scheme in early 2005, Mr Brown presented the image of an "important and well-connected man", which ran contrary to CVs found in his Spanish home following his arrest.

The deal with Mr Edwards, which was set up through an intermediary who had signed an agreement with Mr Brown to introduce clients to his business, was sealed at a meeting in the financier's flat in February 2005, during which the bond trader boasted of being educated at Gordonstoun public school and of a long career in the City.

The court heard that neither claim was true. A "biography" in which Mr Brown stated he had a degree in hotel catering and institutional management from Strathclyde University, and also enjoyed a successful career in the music business, winning several Grammy award nominations, was also false. In reality, Mr Brown had a City & Guilds qualification in catering.

Mr Edmunds said: "It is the old story. If you tell people a big enough lie, people swallow it. If you donate a total of £2.3m to the Liberal Democrat Party then you come across as important. You create the illusion of a wealthy, influential man."

The court heard that the former football club executive invested a further £1.8m in the scheme.

After agreeing the initial investment, Mr Brown took Mr Edwards to lunch at his gentlemen's club, the Caledonian in Belgravia, where the financier later made a £100,000 donation towards the restoration of its library. Mr Edmunds said: "It was Mr Edwards' money that was used to fund that donation to the Caledonian Club. We really say there is no such thing as a free lunch."

The case continues.