The investigation follows criticism by a 225-strong investors' action group over the information memorandum that Greig Middleton prepared for the trust. The investors put in pounds 9.4m but are likely to see little back and are intending to sue Greig Middleton.
The chairman of the action group said it had already sent a letter before action to Greig Middleton, and that issuing a writ against the firm was weeks away.
The case emerged as Greig Middleton announced the terms of its acquisition by King & Shaxson, the discount house. King & Shaxson agreed to buy Greig Middleton last December for 12 million K&S shares, now worth pounds 18.5m.
Yesterday King & Shaxson said: 'The SFA has started cases against Greig Middleton, Mark Kemp-Gee and Valerie Marshall (both of whom are directors of Greig Middleton) alleging breach of a rule and two principles relating to the preparation of, and disclosure in, regulated publications and the conduct of and internal supervision of staff.'
King & Shaxson said the cases would be vigorously defended.
Mark Kemp-Gee, who is set to join the King & Shaxson board following the acquisition, said the SFA told Greig Middleton two days before Christmas that it was to be investigated. The case involved an enterprise trust that the firm sponsored in Docklands in 1991.
'It was a bit of a bombshell,' Mr Kemp-Gee said. Asked whether the outcome of the case would affect his position on the board, Mr Kemp- Gee replied: 'No.'
King & Shaxson had to publicise the imminent litigation and SFA investigation to shareholders under Stock Exchange rules.
The deal has been ring-fenced against the litigation so that if the claim succeeds it will be paid for by Greig Middleton's current shareholders.
The SFA investigation and the impending legal action arise from work on the Second Greig Middleton Enterprise Zone Trust, which raised pounds 10.7m to buy a single Docklands office block, called The Mansion.
Nine months after the trust bought the block the tenants, an architecture firm, Seifert Group, run by John Seifert - son of the Centrepoint architect, Richard Seifert - went into receivership.
No new tenant has been found so the investors have lost the expected rental payments. A group of investors are now claiming that the information in the memorandum was misleading about the suitability of the tenant.
A spokesman for the SFA said he was unable to confirm either that an investigation was taking place, or the contents of King & Shaxson's announcement.
Seifert Group is still under the control of the receivers Ernst & Young, while Mr Seifert has set up a new practice. The trustees of the Enterprise Zone Trust, Midland Bank, are looking for a new tenant for the Mansion.