A campaign finance bundler for a New York City mayoral candidate John Liu has been arrested for using "straw donors" to funnel illegal contributions, the Manhattan U.S. attorney announced Wednesday.

The arrest comes as federal investigators have also begun looking into inconsistencies in Liu's campaign finance reports.

According to the DA, in August 2011 Oliver Pan accepted a $16,000 campaign contribution from an undercover FBI agent posing as a donor. Individual donations are limited to $4,950, so Pan arranged for 20 straw donors to make $800 donations in their names, and then paid them back with the original money, the DA said.

That is an illegal practice.

Prosecutors allege the money arranged by Pan not only violated maxium individual contribution limits but also inflated the amount of money individual donors gave directly to the campaign, allowing the candidate to claim more matching funds through the city's public program.

Prosecutors said Pan told the undercover agent in a recorded conversation that "usually I have, I have... five people, they fill out the form, and they use, they use their own credit card or check, then, and then we give them the cash."

He is charged with one count of conspiracy to commit wire fraud and one count of attempting to commit wire fraud.

"Pan violated the letter and clear intent of the limitation on individual campaign contributions," said FBI New York director Jan Fedarcyk. "His use of straw donors to conceal an impermissibly large contribution was an assault ion the integrity of the electoral process."   

A call to Pan's attorney Julia Gatto was not immediately returned.

Liu said in a statement that he was "saddened" by the news of the arrest.

"If it is true then the conduct was clearly wrong and my campaign was not told the truth," he said.

The New York Times reported last month that there were numerous inconsistencies in Liu's campaign finance reports, including questions about whether some donors even exist.

Liu has denied any wrongdoing and he is working with prominent defense lawyer Paul Shechtman.  Shechtman has said Liu wants the truth about questionable campaign fundraising to come out.  

Liu, the city's comptroller, recently announced he had raised $1 million in the first six months of the year.

The Times found about 24 "irregularities" in his campaign filing. Those included people who could not be found and people who said they never donated to Liu. Others said a boss or another Liu supporter donated in their name.