The Charity Commission opened a compliance case into the veterans charity Help for Heroes last year because of fears that staff breached data-protection rules by sharing beneficiaries’ medical details.
The charity has denied the accusations and said they were "reckless" and a "kick in the teeth" for staff, volunteers and wounded volunteers.
The Mail on Sunday newspaper yesterday dedicated its front page to the claims, which it said were made by former staff, whom the MoS said had been unfairly dismissed after raising their concerns and then offered payouts totalling £200,000 to keep silent.
The article also alleged that one beneficiary had attempted suicide after details of his medical history were shared inappropriately.
A commission spokesman confirmed that the regulator opened a compliance case on the charity in April last year.
"Serious concerns were raised with us about services provided at the rehabilitation centre funded by Help for Heroes," he said.
He said the commission had been in contact with the charity and that trustees had cooperated and provided the requested information.
"Our engagement with the charity is still ongoing and we are not in a position to provide further information at this stage," he said.
The Mail on Sunday quoted an unnamed former employee as saying: "There was no data-protection policy.
"The leadership preferred an ‘open door’ approach, whereby any member of staff could discuss any client’s case with anyone."
The charity, which had an income of more than £37m in the year ending September 2014, grew rapidly after it was founded in 2007 by ex-army officer Bryn Parry and his wife Emma to support wounded military personnel.
In an open letter on the charity’s website, Bryn Parry said the charity was appalled by the article.
"By recklessly attacking an organisation which supports and represents the brave men and women of our armed forces, The Mail on Sunday is effectively putting at risk those who have been injured in the service of our country by jeopardising the vital support they may receive in the future," he said.
He described the newspaper’s claims as "false and without foundation" and said the charity had consulted its lawyers about redress.
"Help for Heroes has sound safeguarding procedures and is registered and fully compliant with the Information Commissioner's Office," he said. He said that under some circumstances it was appropriate for the charity to share information internally if someone was felt to be a risk to themselves or others.
"Should an employee fail to meet required professional standards, then action has to be taken," he said. "In these instances we adhere to legal advice."