Former NSW Deputy Premier Andrew Stoner paid global extortionists not to release compromising material after threats were made to his family.
Mr Stoner cited personal reasons when he resigned from the NSW ministry last October.
AAP understands the ex-Nationals leader fell victim to a blackmail attempt through social media site LinkedIn last year, although a friend says that was not the reason he quit politics.
Police sources told AAP Mr Stoner has told investigators the scam involved compromising images of himself.
An extortionist demanded money to prevent the images being distributed.
However, when contacted on Monday night, Mr Stoner denied the scam involved images.
"The details of the story aren't right and I won't be commenting as advised by police," he told AAP.
It is understood Mr Stoner paid a sum of money and reported the matter to NSW Police last year.
A source close to Mr Stoner said threats were made to him and his family.
The former MP, who held several portfolios - including trade, investment and tourism, stepped down from the ministry last October and retired from politics at the March election.
Mr Stoner cited wanting to spend more time at home with his family as the reason for leaving politics.
"After talking with my family, I made this decision in order to allow me to spend more time at home in the immediate future whilst enabling the new leader of the NSW Nationals to stamp his own personal brand on the party," he said at the time.
His case is understood to be one of several similar cases the NSW Robbery and Serious Crime Squad is investigating.
It is believed the extortionists, based in west Africa, target high profile people through LinkedIn and spend long periods building up relationships.
AAP has spoken to another victim, an executive from NSW, who was sent explicit material of a LinkedIn user purporting to be a woman, who then asked for some in return.
He was then sent a message demanding thousands of dollars to prevent the compromising material of himself going public.
The victim, who reported the blackmail attempt to police, said he didn't pay the sum and denied using his work-provided iPad or mobile during the scam.
"I handed my personal phone and personal iPad to police," he told AAP.
"The information that came from extortionists came from my personal equipment, that's why I gave them my personal equipment."
The scam has come to be coined "sextortion" and has netted victims across the world.
Since leaving parliament, Mr Stoner has taken an advisory position with investment bank Moelis & Company.
Premier Mike Baird's office made no comment on Monday night.
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