The Cup Trust, which was at one point the 77th largest charity registered with the commission, received £176.5m in private donations over two years, but spent just £55,000 on good causes. Almost all its funds were spent on buying bonds that were subsequently sold at a fraction of their normal value.
It had put in Gift Aid claims of £46m and its donors might have submitted claims of up to another £54m.
The Charity Commission was heavily criticised in March by MPs on the Public Accounts Committee for failing to take action against the trust earlier.
In a statement released today, the commission said it had opened an inquiry on 12 April "immediately following the receipt of new information from HM Revenue & Customs on 10 April about significant recent events".
It said: "The information was supplied in the course of our regular contact with HMRC about charities giving us cause for concern and under a specific legal provision that permits the sharing of information in such circumstances.
"This new information came on top of the commission’s growing concerns about the administration and management of the charity."
The commission has stripped the corporate trustee of the charity – Mountstar PTC, a company based in the British Virgin Islands – of any power to act.
It has appointed Jonathan Burchfield, a partner at the law firm Stone King, as interim manager of the charity, with the power to make any decisions that might normally be taken by trustees.
"The corporate trustee is seeking to challenge the decisions the commission has made," the statement said.
The commission said the inquiry into the Cup Trust would consider whether the charity had been properly administered, whether the trustee had properly complied with its duties and responsibilities and how it managed conflicts of interest, particularly in relation to the handling of the Gift Aid claims. It will publish a report showing its findings.
Michelle Russell, head of investigations and enforcement at the Charity Commission, said: "We have had ongoing concerns about the charity’s involvement in the Gift Aid scheme and the potential for damage to public trust and confidence. While we took no regulatory action pending HMRC’s determination of the charity’s Gift Aid claims, we have continued to look at the trustee’s handling of its responsibilities and duties.
"We always made it clear that if new information came to light, we might open a further investigation. In light of our ongoing concerns, when we received new information from HMRC we took immediate steps to open a statutory inquiry."