Prince Andrew has forgiven his ex-wife Sarah Ferguson for trying to charge a bogus businessman £500,000 to meet him.
The Duchess is understood to have made a tearful phone call to the prince begging his forgiveness after a British newspaper exposed her in a "cash for access" scam.
Ferguson, whodivorced Andrew in 1996, also offered to move out of the home she shares with her former husband at Windsor.
But the Daily Mirror newspaper reported on Wednesday that the prince had forgiven her and told her she could stay because he believed she had been the victim of an elaborate scam.
"He is a very caring person, a loving father and he told Sarah not to be so silly," an unnamed friend told the newspaper.
"He told her she had been set up and although she had clearly made a massive mistake, he wasn't going to kick her out on to the streets.
"He knows she can't afford anywhere - that's why he let her stay at Royal Lodge in the first place."
Ferguson, who has two daughters with Andrew and has struggled in the past with massive debts, is believed to have telephoned the prince from Los Angeles, where she was presented with an award for her charity work on Tuesday.
In a tearful conversation, she is said to have begged for his forgiveness after betraying his trust and promised to move out of his home when she returned to England.
Ferguson was filmed by The News of the World accepting cash from a fake businessman in exchange for him being able to meet Andrew, who is Britain's special trade envoy.
After the footage was released on Sunday, Ferguson apologised for a "serious lapse in judgment" and said her financial situation was "under stress".
