NEW YORK — Former top Trump strategist Steve Bannon was arrested and charged on Thursday along with three others for defrauding hundreds of thousands of donors in a Mexico border wall fundraising campaign, in a blow to the Republican incumbent.

The man credited with orchestrating Donald Trump's 2016 presidential bid denied one count of conspiracy to commit wire fraud and another of conspiracy to commit money laundering, according to US media. He was released on US$5 million bail.

"This entire fiasco is to stop people who want to build the wall," he told reporters outside court, smiling broadly as he removed his face mask and got into a waiting car.

The online crowdfunding campaign known as "We Build the Wall" raised more than $25 million, prosecutors said, which the defendants promised would go towards construction of a southern border barrier but which they instead siphoned off.

The arrest is the latest in a string of high-profile criminal probes into Trump's inner circle, and comes just months before the November vote in which the Republican hopes to win re-election.

The president aimed to distance himself from the plot, saying: "Don't know anything about the project at all."

"I think it's a very sad thing for Mr Bannon," Trump said, adding he felt "very badly" and he hasn't "been dealing with him for a long period".

Manhattan federal prosecutors said Bannon, the organisation's founder Brian Kolfage, venture capitalist Andrew Badolato and owner of a pro-Trump energy drink company Timothy Shea, "received hundreds of thousands of dollars in donor funds from We Build the Wall, which they each used in a manner inconsistent with the organisation's public representations."

Federal postal inspectors intercepted Bannon, 66, on a $35 million, 150-foot yacht off the coast of Connecticut, according to The New York Times.

The paper said the boat belonged to Guo Wengui, the exiled Chinese tycoon.

Early suspicions

The fundraising scheme began in 2018 as a GoFundMe campaign to raise money organisers said would go towards the border wall Trump promised during his 2016 campaign.

One week after launching, the online appeal took in $17 million, which raised suspicions at the crowdfunding site and prompted it to temporarily shut the campaign down.

GoFundMe said organisers would need to identify a legitimate nonprofit where the money was headed or it would be returned.

The four men began using both a Bannon-controlled non-profit and a Shea-led shell company, as well as vendor agreements and fake invoices, to conceal their tracks, court documents said.

Prosecutors say the men gave repeated false assurances to donors, vowing that all funds raised would go "only directly to wall!!! Not anyone's pocket".

Kolfage, a Florida-based 38-year-old, at one point even urged donors to purchase coffee from another company he ran, saying it was the only way to keep "his family fed and a roof over their head", prosecutors said.

Boat payments and plastic surgery

Some donors wrote personally to Kolfage saying they were low on funds and skeptical of online fundraising, "but they were giving what they could because they trusted Kolfage would keep his word about how their donations would be spent", the indictment said.

Kolfage - a US Air Force veteran and triple amputee wounded while serving in Iraq - repeatedly assured them their money was safe, but in fact, prosecutors say he took more than $350,000 for his own use, funding personal expenses including boat payments, a luxury SUV, a golf cart, cosmetic surgery and credit card debt.

Badolato, Shea and Bannon each received hundreds of thousands that went to expenses including travel, hotels and consumer goods, according to the documents.

Bannon in particular received over $1 million of the donations which he funneled through his non-profit, using some of it to pay Kolfage while a substantial sum lined his own pockets.

The men learned their scheme might be under federal criminal investigation in approximately October 2019, when they began crafting additional measures to conceal it, prosecutors said. — AFP