The Financial Conduct Authority has begun an investigation into M&C Saatchi following the accounting scandal that was revealed last year.
The advertising group has suffered an exodus of senior leadership, including co-founder Maurice Saatchi, after accounting irregularities prompted an £11.6m "adjustment" in the company’s account over two years.
The FCA, the government’s financial watchdog, was known to be examining M&C Saatchi since December 2019, but a formal investigation begins proceedings that could lead to a prosecution.
It is thought that the FCA will begin with a fact-finding mission, which could include demanding documents and speaking to senior employees at the business.
As the investigation proceeds, the FCA will form a view about whether further action is needed, such as a fine or a public censure.
Research analysts Peel Hunt described the investigation as "another setback for 2020", having credited M&C Saatchi for making "good progress" by appointing two strong independent non-executive directors to its board, Gareth Davis and Colin Jones, earlier this week.
M&C Saatchi, a limited company, saw its share price fall 9.5% this morning in early trading. The price fell as low as 93p but has settled to 101p at the time this story was published.
In a statement to investors, M&C Saatchi said: "The FCA has notified M&C Saatchi plc that it has commenced an investigation following the accounting adjustments announced by the company, most recently on 4 December 2019, and following the completion of an independent forensic review commissioned by the board. The company will co-operate fully with the FCA."