Australian regulators are probing the withdrawn A$1.65 billion ($1.7 billion) takeover offer for David Jones by a little-known Britain-based firm that sent shares in the country's No.2 department store chain on a rollercoaster ride.

The Australian Securities and Investments Commission (ASIC) said in a statement on its website it was looking at potential issues over disclosure and trading in David Jones stock by both domestic and international parties.

David Jones shares surged as much as 19 percent on Friday after it revealed the offer from EB Private Equity (EBPE), which is not listed in Companies House, the registrar of privately owned firms based in England and Wales, nor recorded by private equity tracking firm Preqin.

The shares fell 10 percent on Monday after David Jones said EBPE had withdrawn the offer due to publicity around the approach, prompting calls from investors for an investigation.

A David Jones spokeswoman said on Tuesday that the retailer had approached the regulator and the stock exchange on Friday about its concerns on the takeover approach and was fully cooperating with ASIC.

The company had said on Monday that it behaved appropriately in revealing the unsolicited "highly conditional, uncertain and incomplete expression of interest" from EBPE.

If ASIC finds evidence of market manipulation or insider trading, the penalties can include incarceration and fines of up to A$5 million for corporations and A$500,000 for individuals, or three times the value of gains from the activity, whichever is greater, said Andrew Finch, a senior corporate partner at law firm Allens Linklaters.

He added that, in cases where the gains could not be assessed, the penalty could be set at 10 percent of a company's annual turnover.

Australia's top contractor Leighton Holdings paid three fines of A$100,000 each earlier this year after ASIC found it had breached disclosure rules.

PENALTIES

It is too early to determine where the regulators will focus their investigations, lawyers said, although they could lead to millions of dollars in fines and civil penalties against any institutions or individuals found to have misled the market or engaged in insider trading.

ASIC declined to comment on whether it would be working with British regulators on the David Jones investigation. Traders said ASIC would ideally look into all trades in the lead up to the announcement.

"The whole process was shrouded in controversy. It is only right ASIC look into this," said Chris Weston, a dealer at IG Markets.

David Jones said it had received an initial approach in May and had decided to inform the market of a second approach last week because of concerns that news of the bid would leak.

EBPE, according to its website, is a real estate investor that counts retail properties among its strategic interests. The website lists no telephone number or address and carries only basic information about its strategy.

EBPE Chairman John Edgar hired a local communications firm to arrange interviews with Australian newspapers over the weekend and told them the offer was genuine, but at a preliminary stage.

Edgar said EBPE, with $200 million of funds under management, had spoken to financial institutions and investors about joining the bid for David Jones. He added that EBPE, based in Newcastle in northeast England, was a property-oriented fund that had done deals in Europe, Africa and North Africa.

EBPE declined to comment in response to an e-mail request from Reuters.

David Jones has been seen as a potentially attractive takeover target, primarily for its property portfolio worth up to A$700 million, following a near halving in its shares in the past year. It owns flagship stores in the heart of Sydney and Melbourne.

Shares in David Jones were unchanged at A$2.33, still up 3 percent compared with A$2.26 before the EBPE approach was made public on Friday. They were at A$4.13 a year ago.