The chairman of Italian sports car maker De Tomaso, Gian Mario Rossignolo, and two other men were arrested during a probe into the misuse of 7.5 million euros ($9.2 million) of public funds, Italy's tax police said on Thursday.
The funds were part of a failed plan to revive production of the brand at the De Tomaso Automobili plant, a former Pininfarina factory in Grugliasco, near Turin.
Rossignolo, a former Fiat executive, bought the marque in November 2009 after the company filed for bankruptcy in 2004, a year after its founder's death.
In 2011, he presented the SLS sedan at the Geneva auto show and announced plans to build up to 8,000 cars a year. But earlier this year Rossignolo was forced to file for bankruptcy after failing to find financial backing.
Rossignolo's and the carmaker's lawyers were not immediately available for comment.
The Turin prosecutors office opened a probe a few months ago asking the tax police to ascertain how De Tomaso was making use of public funds.
Police said in a statement that investigators believe the managers may have used a false bank guarantee to receive funds from the region of Piedmont and from the European Union, and that some of the money may have ended up in the three men's bank accounts.
De Tomaso received several million euros in public funds for the re-training of 1,000 workers starting in January. The workers have been on temporary layoff since 2010.
In May, the Piedmont region asked the company to refund 5 million euros it had granted to the carmaker.
Rossignolo, who is under house arrest, is being investigated along with the head of De Tomaso's human resources office and a financial intermediary.
During a 22-year career with Fiat Group, Rossignolo was a top marketing executive at the company and CEO of the Italian automaker's Lancia brand from 1977 to 1979.
The De Tomaso brand was founded in 1959 in Modena, Italy, by Argentine racecar driver Alejandro De Tomaso and became an iconic sports car marque in the 1960s and 1970s.
The De Tomaso project is Rossignolo's second attempt at reviving a defunct Italian brand. About 15 years ago, he attempted to restart Isotta Fraschini and an Audi-based Isotta Fraschini T8 was unveiled at the 1996 Geneva show, but it never entered production.
Reuters contributed to this report