NEWCASTLE MP Tim Owen has been implicated in a scheme that allegedly secured illegal political donations from Buildev, Keith Stronach and other property developers to prop up his 2011 campaign through the use of sham invoices.

Combined with misinformation campaigns waged against Labor MP Jodi McKay, allegedly run by Nathan Tinkler through either his Buildev interests with the help of Labor powerbroker Joe Tripodi or the Newcastle Alliance advertising campaign he bankrolled, the result was the ‘‘manipulation’’ of the state election outcome in the city seat, a corruption inquiry has been told.

And in further nightmare revelations for the Liberal Party and Baird government, the inquiry heard Charlestown MP Andrew Cornwell is expected to give evidence today that he was handed a $10,000 wad of cash by property developer and now lord mayor Jeff McCloy during a meeting that took place in Cr McCloy’s Bentley during the state election campaign.

Both MPs were forced to step aside from their party and join the crossbench yesterday, and Mr Cornwell to abandon his role as government whip, with Premier Mike Baird declaring he made ‘‘no judgment’’ about the allegations but did not want them to be a distraction for the government.

That wish seems unlikely to be fulfilled, with counsel assisting the inquiry Geoffrey Watson SC telling the hearing that evidence of ‘‘serious irregularities’’ had been found in the funding and conduct of campaigns in both seats and would be aired.

Mr Owen’s local campaign manager, lawyer Hugh Thomson, has admitted  being at the ‘‘centre of the illegalities’’ and detailed his part in return for his statement not being used in a criminal prosecution against him.

‘‘The evidence is that there was a broad understanding that a number of different prohibited donors would, acting under some subterfuge, provide the funds to keep the [Newcastle] campaign rolling,’’ Mr Watson said.

Those involved with Mr Thomson were former Port Stephens councillor and prolific Liberal campaigner Josh Hodges and ‘‘the candidate himself – Tim Owen’’.

Former police minister and senior Hunter Liberal Mike Gallacher  was ‘‘aware of these arrangements and ... suggested some of them’’, while former resources minister Chris Hartcher ‘‘was also aware and participated in some aspects of it’’.

The scheme allegedly entailed the issuing of fake invoices, including to Hilton Grugeon’s Hunter Land,  Cr McCloy’s McCloy Administration, Mr Stronach’s Newcastle Yachting, and other developers to raise money for the wages of Mr Hodges and Luke Grant, a radio announcer, while they worked on Mr Owen’s campaign.

In some cases, invoices were issued to businesses Mezzanine Media and Australian Decal Sales and Manufacturing, who then issued invoices to Buildev to pay.

Mr Hodges’ wages were to be paid by two local developers, through a scheme organised by Mr Thomson and Mr Owen following a meeting at Port Stephens MP Craig Baumann’s electorate office in December 2010.  ‘‘Mr Baumann may have been aware of it,’’ Mr Watson said, in his only reference to the other Liberal MP.

Mr Grant, who looked after the campaign’s media, was to be paid $20,000 by Mr Grugeon and Mr McCloy, with Mr Thomson advising Mr Grant to issue invoices for a ‘‘random’’ sum ‘‘so it doesn’t look obvious’’.

 However, while Buildev promised to support the campaign, it didn’t always pay, and Mr Owen, who has said publicly he knew nothing about who donated to his campaign, was allegedly enlisted to chase up the money.

‘‘Mate Can you call [Darren Williams] about the Mezz and Decal situation. I am getting abusive calls and he won’t respond to any of my calls, texts etc. I need you to lean on him,’’ Mr Thomson texted to Mr Owen in July 2011. ‘‘Will do,’’ Mr Owen replied, then rang Mr Williams a few minutes later.

Mr Grugeon and Mr McCloy, who was not yet lord mayor, also gave money to Mr Cornwell, as the Charlestown MP would tell the inquiry, Mr Watson said.

Mr Cornwell, a vet, was in surgery at his Cardiff practice when he was called to an urgent meeting with Mr McCloy. They sat in his Bentley when Mr McCloy handed him an envelope containing $10,000 in cash.

Mr Cornwell was ‘‘shocked and embarrassed’’ and took the money home. He later gave it to the president of the Liberal Party Charlestown branch, telling him it was from a donor who wanted to remain anonymous. The president, Bob Beaven, who believed the money was actually in a brown paper bag, then banked it and donated it to the party.

The inquiry would also hear Mr Cornwell and his wife, Samantha, gave Mr Grugeon a Christmas present of a painting by artist Rex Newell, a friend of Mr Cornwell’s father. However, Mr Grugeon insisted on paying him for it and ‘‘fixed the purchase price at $10,120’’.

‘‘Mr Cornwell was embarrassed by the receipt of money and, at first, told his wife not to bank the cheque,’’ Mr Watson said.

Other evidence implicated Mr Tinkler in a $120,000 payment that went to three seats and text messages  between Mr Thomson and Mr Gallacher about ‘‘the Big Man’’.

Mr Watson described Mr Cornwell and Mr Owen as ‘‘outstanding candidates’’ for Parliament who had sacrificed ‘‘lucrative careers’’ to stand.

‘‘One can see how the inexperience of each made them susceptible to being manipulated by wealthy individuals who wanted political preferences, especially if those wealthy individuals had pre-existing support of elements within the party machine,’’ Mr Watson said.

Mr Cornwell had helped ICAC and there was no evidence he favoured Mr McCloy or Mr Grugeon. Mr Owen ‘‘might be in the same class’’ but it ‘‘remains to be seen the extent to which he co-operates with the inquiry. Both MPs said last night they would assist the inquiry and were confident they would be cleared of wrongdoing.

ICAC investigators found no  wrongdoing in  the campaign funding for  Maitland MP Robyn Parker and Swansea MP Garry Edwards.

Mr Edwards is expected to give evidence, however, about a  call he received from Mr Hartcher pressing Buildev’s interests in a development at Lake Macquarie that Mr Edwards opposed. Mr Edwards gave Mr Hartcher a ‘‘blunt’’ response.

But if the shock revelations weren’t enough for Hunter voters, the inquiry will also turn to the role of the Newcastle Alliance in Mr Tinkler’s efforts to oust Ms McKay from the  seat. The inquiry had already heard Mr Tinkler agreed to pay $50,000 for ‘‘carpet’’– a reference to Alliance head and Newcastle carpet retailer Paul Murphy.

The inquiry was told yesterday the Alliance’s Fed Up campaign had been devised by Mezzanine Media and originally offered to the Liberal Party. While they didn’t pursue it, Mr Thomson allegedly suggested through Mr Murphy, restaurateur Neil Slater and hotelier Rolly de With, that their Alliance take it up.

It was ‘‘quite illegal’’ for the Alliance to have accepted Mr Tinkler’s funding, via Buildev, Mr Watson said.