An heir to the Fiat fortune stands accused of falsely claiming he had been kidnapped by a transgender prostitute.
Lapo Elkann called his family from New York to demand a $10,000 (£8,000) ransom “to guarantee his safety”, a US official told the Associated Press.
But having found him in Manhattan, investigators now believe he concocted the story after he ran out of money following a drink and drugs binge.
The grandson of Fiat’s Gianni Agnelli is now due in court in January.
‘Very interesting characters’
Mr Elkann, who was arrested on a misdemeanour charge of falsely reporting an incident, had only arrived in the US last week.
The Italian had told his Instagram followers he was going abroad to pursue “a lot of projects in development… a lot of new ideas” in a rambling video posted on Thursday.
Mr Elkann, dressed in a bright red suit, also said the business trip would bring him into contact with “many very interesting characters”.
Instead, media reports in the US and Italy say the 39-year-old spent two days with the woman, before calling his family in order to get more money.
He claimed he had been held in a Manhattan flat from about 17:00 local time on Friday, until police arrested him outside a public housing complex at about 02:00 local time on Sunday.
Mr Elkann, who was born in New York, is a Fiat shareholder but has no official role in the company.
Instead, Mr Elkann – who made headlines in Italy in 2005 after he was hospitalized for a drug overdose in Turin – runs a company called Italia Independent.
Mr Elkann has not yet returned a message seeking comment from AP. His publicist, Alessia Margiotta Broglio, declined to comment.