Taiwan leader Chen Shui-bian's popularity was hit by another heavy blow as his son-in-law was said to be involved in an insider trading.

Wedding picture of Chen Shui-bian's daughter and son-in-law Chao Chien-ming. [File Photo]

The Chinese-language China Times newspaper said on Monday the Taipei district prosecutor's office began investigations last week into the case filed by Chiu Yi, a legislator of the Nationalist Party.

The scandal happened at a time when Chen's popularity has already slumped to new lows due to a string of corruption scandals.

Chiu said that Chen's son-in-law, Chao Chien-ming, made profits of up to T$400 million ($12.65 million) by using dummy accounts to buy 20 million shares of real estate developer Taiwan Development Corp. <2841.TW> at T$2 each.

Chen's office said in a statement issued on behalf of his son-in-law that the accusations were "totally made up out of thin air and have misled the public".

The office quoted Chao as saying he had no knowledge of his mother's financial investments and did not get involved in her decisions.

A ruling party law-maker, Huang Wei-che, defended Chao's mother, saying she had bought the shares from Chang Hwa Bank <2801.TW> last year after receiving professional advise.

Taiwan Development shares fell by the daily seven-percent limit to close at T$16.80 on Monday.

A bank spokesman confirmed the purchase but denied any wrongdoing. He would not say why the bank had sold the Taiwan Development shares to her. The shares have increased about eight-fold in value since last year.

Chen Shui-bian's office described as fabrication another accusation by legislator Chiu that Chao bought a luxury apartment at a big discount last year.

Chao, a medical doctor married to Chen's daughter, would sue Chiu for defamation, the office said without further comment.

The prosecutor's office, reached by telephone, had no immediate comment.

Chen's popularity has been dogged in recent months by scandals involving his men.

Taiwan's top financial regulator, Kong Jaw-sheng, resigned on Monday, days after he was questioned by prosecutors in a corruption scandal when he was head of the island's sugar refiner.

And last month, an opposition deputy said Chen's wife Wu Shu-chen has accepted department store vouchers worth millions of Taiwan dollars from a friend. Chen has denied the allegations.