The authorities are investigating leases for five retail buildings between Arcandor and a real estate fund in which Middelhoff invested. The deals took place before Middelhoff was hired by Arcandor but raised suspicions because of the exceptionally high rents charged, according to the weekly magazine Der Spiegel.
The accusation is that Middelhoff improperly profited from the deal through his position at Arcandor.
The fund was created by private bank Sal. Oppenheim and real estate developer Josef Esch. Middelhoff said his stake in the fund with his wife was less than 10 percent, their investment was purely in a personal capacity and he never thought that he would be tapped to join KarstadtQuelle's board (the company was later renamed Arcandor) two years later.
After taking the job in 2004, Middelhoff said he informed the company's board of directors of his holdings in the Esch fund. In 2005, he was promoted to the top job at the retailer.
The allegations against Middelhoff have already been investigated before. The new probe comes at the suggestion of German Justice Minister Brigitte Zypries to the Essen prosecutors.
“We've reappraised this suggestion and are now going forward with a demand for criminal proceedings,” said Angelika Matthiesen, spokeswoman for the Essen prosecutors, who added the matter was a formality since no new information has come to light.
Middelhoff was ousted from Arcandor earlier this year after failing to stem large losses at the firm. Arcandor filed for bankruptcy on Tuesday after the government refused to offer the company an emergency loan that would have allowed Arcandor to refinance hundreds of millions of euros of debt that came due this week.
Over 43,000 jobs at the company's Karstadt department store chain could be in danger if the company fails to find a buyer. Rival Metro has said it is interested in parts of Arcandor but merger talks have stalled in recent days.