JULIA Gillard's high-stakes election strategy has been rocked by ex-Labor MP Craig Thomson's arrest on 149 fraud charges.
Police arrested the MP yesterday over allegations he misappropriated hundreds of thousands of dollars of funds while he was Health Services Union national secretary.
The charges follow an investigation by Victorian fraud squad detectives in relation to claims Mr Thomson allegedly spent more than $7000 of union monies on escort services.
A shaken Mr Thomson emerged from the Wyong Court late yesterday after being granted bail, including one condition that he not contact "directly or indirectly" anyone who he allegedly engaged for sexual services.
The one-time Labor rising star - who was dumped by the ALP over alleged indiscretions while he was a union boss - will travel to Melbourne next week for a court hearing and vowed to "vigorously defend" the multiple charges.
"As I have said from the start, I have done no wrongdoing and that's what will be found in these matters," he said.
Victorian fraud squad detectives - who invited Mr Thomson to travel to Melbourne before Christmas - will allege that he used HSU funds to pay for escorts and personal items.
Police have worked closely with Fair Work Australia, which has also taken legal action against Mr Thomson.
The FWA court action - which is set down for a directions hearing in Melbourne this morning - may be deferred to allow the more serious criminal allegations to be heard by a court.
And in a further setback for Mr Thomson, NSW police confirmed that he remained a "person of interest" in relation to Strikeforce Carnarvon. That investigation has already led to multiple charges being laid against former Labor powerbroker and union boss Michael Williamson.
Labor MPs reacted with horror upon hearing of the charges laid against their former colleague, who received more than $300,000 in legal assistance from the NSW ALP as he fought the allegations of fraud.
The MP is alleged to have used two union credit cards to make cash withdrawals and for unauthorised transactions, including more than $7000 spent on prostitutes. News Limited understands police have engaged forensic experts to try and prove their case against the MP.
The Prime Minister declined to comment on the arrest of her former colleague, telling reporters in the flooded city of Bundaberg that it was a matter for the police.
But Opposition leader Tony Abbott claimed the Thomson scandal reflected badly on Ms Gillard's political judgement. "It's always been about the judgement of the Prime Minister," Mr Abbott said, during a major speech to the National Press Club.
During a brief appearance in the Wyong Court, Mr Thomson was formally charged with one count of misuse of a credit card to the value of $330. He did not enter a plea but was remanded to appear in the Melbourne Magistrates Court on February 6.
He was given bail on three conditions including that he notify police within 24 hours of any change of address and that he give 24 hours notice of any travel overseas or interstate with the exception of travel to Canberra.
He was also told not to contact "directly or indirectly" any person he is alleged to have had any sexual contact with.Mr Thomson nodded when he was asked if he understood the bail conditions.