Chen Jiulin is co-operating with the inquiry, police say

CAO collapsed in late November after amassing trading losses on oil futures in October, when global prices surged.

Chen Jiulin, CAO's chief executive, was arrested on returning on Wednesday from his native China.

The affair is the biggest trading scandal to hit Singapore since the $1.2bn failure of Barings Bank in 1995.

CAO has launched a $100m rescue plan following its collapse.

Miscalculation

Its plight was the result of heavy bets on falls in oil prices.

But in October prices continued the upward surge seen throughout most of 2004, wrecking the firm's strategy and driving it deep into the red.

The day CAO announced its losses, Mr Chen flew out to China, and the white-collar crime division of Singapore's police force has been pushing for his return ever since.

Although CAO is listed in Singapore, most of its shares are held by a Chinese government-owned holding company.

The company - China Aviation Oil Holding Co - cut its holding from 75% to 60% on 20 October, and court documents indicate it knew of the losses at the time.

It has now expressed "regret" over CAO's collapse.

"We will do our utmost as a responsible parent company to provide our full support for the restructuring effort," said Jia Changbin, its president.