Watford are being investigated by the English Football League following allegations they supplied false financial documents to the governing body.
The United Kingdom's Daily Telegraph newspaper is reporting the claims, which centre on Gino Pozzo's sole takeover of the club in 2014 from his father Giampaolo and the alleged use of a forged banking letter.
The EFL have launched an investigation into the club because Watford were a Championship club at the time.
The Hornets could be handed a hefty fine or even a points deduction if the allegations are found to be true.
An EFL spokesman confirmed an investigation is underway.
"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 spokesman said.
"The club has been formally contacted by the EFL and is now required to provide a full and detailed response to the allegations."
The Hornets are currently ninth in the English Premier League after taking 12 points from their opening nine games.
The club released a statement to the Telegraph which said: "There are two ongoing investigations. It would be inappropriate to comment further until those investigations reach completion."