Watford are under investigation from the English Football League following allegations they supplied false financial documents to the governing body.
The allegations, reported in the Daily Telegraph on Monday, centre on Gino Pozzo's sole takeover of the Hornets in 2014, where he assumed complete control from his father Giampaolo, and the alleged use of a forged banking letter.
The EFL have launched a full investigation, as the Hornets were a Championship club at the time, and they could hand down a hefty fine or even a points deduction should the allegations be found true.
An EFL spokesman said: "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.
"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."
The Hornets are currently ninth in the Premier League after taking 12 points from their opening nine games.
The club released a statement to the Telegraph, saying: "There are two ongoing investigations. It would be inappropriate to comment further until those investigations reach completion."