Sports Direct shares are crashing after a financial watchdog announced an investigation

LONDON - Shares in embattled discount retailer Sports Direct are crashing on Monday morning after the financial reporting watchdog announced it is investigating the company.

The Financial Reporting Council (FRC) announced it is investigating Sports Direct for failing to disclose Barlin Delivery as "a related party" in the company's financial statements. The Financial Times revealed in August that Barlin, which handles international deliveries for the discount sports retailer, is run by Sports Direct founder Mike Ashley's brother, John.

Barlin makes an estimated £300,000 a year from Sports Direct, according to the FT, and further investigation by Business Insider suggests Barlin is also working with other companies owned by Mike Ashley, including USC, Karrimor, and the online shop of football club Rangers.

The business relationship has not been publically disclosed by the company, despite rules requiring directors to detail engagements with "related parties" to ensure there are no conflicts of interest. Sports Direct told the FT its auditors Grant Thornton decided no disclosure was necessary.

The announcement of the FRC investigation, the latest in a run of bad news for Sports Direct, sent shares crashing over 3%. The stock is still down over 2% at just after 10.00 a.m. GMT (5.00 a.m. ET), around half an hour after the news broke:

Barlin's headquarters are registered at a detached house in a Cleethorpes cul-de-sac, a small seaside resort on the Humber estuary in Lincolnshire, and the company does not own any trucks or employ any drivers, instead working as an intermediary that arranges delivery for Sports Direct.

It is not the first time business relationships between Sports Direct and Mike Ashley's immediate family have been uncovered. Last year it was revealed that the discount sports goods retailer gave the boyfriend of owner Mike Ashley's daughter a high-level job and a £10.7 million loan.

The FRC investigation is just the latest in a string of bad news for the discount sports retailers, once one of the favourite stocks of fund managers in the City.

The retailer agreed to pay £1 million to former staff earlier this year after admitting it had effectively paid warehouse workers less than minimum wage. That admission came after a series of press investigations and a Parliamentary inquiry that concluded conditions at Sports Direct's warehouses were like a "Victorian workhouse."

CEO Dave Forsey resigned in September, with founder Mike Ashley stepping in and vowing to turn around the business. However, earlier this month the company was accused of spying on MPs during a surprise warehouse visit to inspect conditions.

Sports Direct's share price has collapsed almost 30% since the start of the year, due to the political pressure and struggling business performance.