The English Football League (EFL) has opened an investigation into Watford following claims the club falsified financial information when Gino Pozzo became their sole owner in 2014.
The Daily Telegraph reported on Tuesday that Watford submitted a forged HSBC bank letter to show Pozzo had the financial resources to bankroll the Vicarage Road club.
The EFL has now confirmed it is looking into the claims.
"We can confirm, following receipt of information from the Daily Telegraph, that we immediately commenced a Disciplinary Investigation into serious allegations made against Watford Football Club," an EFL statement reads.
"The club has been formally contacted by the EFL and is now required to provide a full and detailed response to the allegations.
"Once that response is received, it will be fully considered by the EFL and appropriate action will be taken under our rules and regulations.
"We will not be making any further comment until we are in receipt of the club's response."
Watford have also launched their own investigation, with a statement reading: "Watford Football Club was recently contacted by the EFL in relation to matters concerning a proof of funds document for £7 million provided to the EFL by Hornets Investments Ltd in 2014 in order to ratify a change in Hornets Investments Ltd shareholding.
"The club had no prior knowledge of any concerns about the authenticity of the document and Hornets Investments Ltd has invested over £20m into the Club since the proof of funds 2014 document.
"The club takes this matter extremely seriously and has instructed independent solicitors to carry out an investigation into relevant matters and provide the EFL with the solicitor’s report early next month. The EFL has indicated it is happy with this course of action.
"In light of the ongoing investigation it would be inappropriate to comment further at this time."
EFL rules from 2014 indicate punishment for the offence could range from a formal warning to expulsion from competitions.