DETECTIVES suspect that £500,000 seized from George Reynolds' car was money laundered from Darlington Football Club, a court heard yesterday.

The cash was recovered by police after they swooped on a vehicle carrying the former Quakers chairman, his cousin Richard Tennick and personal assistant Ian Robinson on Monday in Bishop Auckland, County Durham.

All three were arrested on suspicion of money laundering and questioned by police for seven hours before being released.

Yesterday, Mr Reynolds lost a legal bid to try to get the money returned to him.

Darlington magistrates made an order allowing detectives to keep it for 28 days, rather than the three months they requested, to investigate where it came from.

Detective Sergeant Martin Fleming, from the North-East's Regional Asset Recovery Team, told the court that police were contacted by the Co-operative Bank, in Darlington, last Friday.

Staff were concerned about £800,000 which was credited to Mr Reynolds' account on June 9.

Det Sgt Fleming said he suspected the £800,000 had come from Darlington FC by way of "unlawful conduct".

He told the court: "This is now a money laundering investigation. My suspicion at the moment is that this transaction is based on some unlawful conduct."

But Jamie Hill, barrister for Mr Reynolds, said the money came from Mr Reynolds' solicitor's account and had been paid into that from the personal accounts of two members of the Sterling Consortium - Stewart Davies and Melvyn Laughton.

He said it was payment for Mr Reynolds' house, Witton Hall, in Witton-le-Wear, County Durham, which was being sold to Sterling.

Mr Hill said: "It may well be that the Co-operative Bank, based in Darlington, has put two and two together and come up with five."

Darlington FC went into administration last year with reported debts of more than £20m.

Sterling stepped in as new owner after agreeing a company voluntary arrangement (CVA) with creditors, including Mr Reynolds, which saved it from closure.

But some creditors were unhappy with the settlement and have asked the Department of Trade and Industry to look into the deal, as has the Football League.

Det Sgt Fleming said: "Obviously an important part of the investigation is the circumstances surrounding the CVA and whether the transfer of this amount of money on June 9 has been done lawfully or has it circumvented the CVA.

"We are also looking at the circumstances of the transfer of the cash and whether that forms unlawful conduct."

He said when Mr Reynolds was arrested he told police he was carrying the money to "put it away", that it was connected with a payment from Mr Davies for his house and was to do with Darlington Football Club.

"He further stated there had been a right carry-on and he didn't want the bastards getting their hands on it," said Det Sgt Fleming.

But Mr Reynolds, 67, told the court: "I made it quite plain from day one that it was nothing to do with Darlington Football Club."

He added: "I have sold my house, I have got the money in the bank - I'm entitled to do what I want with that money.

"Is it a crime to spend your own cash? I shouldn't be here at all."

Det Sgt Fleming said it was "in itself suspicious" that Mr Reynolds had withdrawn such a large amount and was carrying it in his car without security.

But Mr Reynolds, who told the court he walked away from the Quakers with only £150,000 from Sterling for his "personal effects", claimed half-a-million pounds was "chicken feed" to him.

An emotional Mr Tennick told the court Mr Reynolds had given him £300,000 of the £800,000 from Mr Davies and Mr Laughton because of the amount he had personally put into Darlington FC.

After the hearing, Mr Reynolds said: "I'm not disappointed. If they keep it (the £500,000) for the month, the interest will pay my legal fees. I know sooner or later I'm going to get it."

Detectives will have to make another application before July 14 if they want to retain the money for longer.

The police made an application to the court that reporting of yesterday's civil proceedings be restricted under the Contempt of Court Act. The bid was rejected by the magistrates after representations from the media.