New South Wales state police Wednesday said they had received legal advice that the former McGrath family friend who asked for money from the bowler's management for the letters was not guilty of extortion.
"Just because something is unsavoury or immoral doesn't necessarily make it illegal," detective superintendent Peter Cotter told reporters. "It would appear certainly at this juncture that no criminal offence has occurred."
Police launched an investigation after receiving a complaint from McGrath's management.
The Daily Telegraph, newspaper reported that a former McGrath family acquaintance, Peter Amiet, had threatened to publicly release the letters, which reportedly contain details about McGrath's parents' marriage, unless he received several thousand dollars.
It said the letters were briefly advertised on the Internet auction site eBay Tuesday and attracted an offer of 15,100 dollars (11,630 US) before being removed pending a police investigation.
Amiet told the Daily Telegraph that the letters were written to him in the early 1990s, when he worked with Beverley McGrath at a mail sorting centre.
He said he was now in a "financial situation" and needed money. He said he initally offered the letters to McGrath's management then, when they declined to buy them, decided to sell them publicly.
McGrath, 35, is due to arrive back in Sydney on Wednesday after failing to inspire Australia to victory in the fifth and final Test at The Oval in England.
McGrath's manager Warren Craig said he had attempted to shield his client from the potentially distracting situation during the series, which England won 2-1.
"Glenn is broadly aware of the situation but he is not fully across it," he told the Daily Telegraph.