The company, which changed its name from Clayform after Martin Landau, the property developer, joined the board in the summer, was understood to be raising more than pounds 20m to buy two portfolios of retail properties.
The issue, which followed a pounds 27m placing in July, shortly after Mr Landau took a stake in Clayform, was fully underwritten. However, the company felt it could not go ahead in the light of the publicity and 'general uncertainty'.
The investigation, which the DTI has not confirmed even to the company, follows a surge in trading in Clayform shares the day before the announcement on 11 June of Mr Landau's proposed investment. The Stock Exchange's Official List for 10 June shows that 2.5 million Clayform shares changed hands, compared with 10,000 two days before.
The price of the shares rose from 14p before the announcement to 25p immediately afterwards, providing big profits for anyone buying ahead of the news. By the following week the shares had risen to 37p.
The company said yesterday: 'So far as it is aware neither the company nor any of its directors are subject to any investigation.' During the past week all the company's officers have signed undertakings that they were not involved in any insider dealing.
Mr Landau's investment in Clayform represented his return to the City after an absence of three years. He and his partner Anthony Bodie acquired a 5 per cent stake in June at 14p a share before taking up his full entitlement to the July share issue at 35p.
The change of name from Clayform to Development Securities was taken to be a statement of intent, reflecting the improving fortunes of the UK property market. After four years of almost no activity, property developers, including Lord Palumbo in the City and Arcona, the Swedish company, in the West End, are beginning to dust off plans for office schemes again.
Mr Landau, who has developed a strong following among institutional investors, gained his reputation for astute timing when he sold Imry Merchant Developers, a property developer, for pounds 314m in 1989. His personal stake netted him pounds 25m.
Two years later, Barclays Bank ended up controlling the company after it in effect collapsed, forcing it to make its biggest single write-off.
Development Securities shares closed 3p lower yesterday at 33.5p.Reuse content