Hackney Council is considering legal action against some of those involved in collapsed social welfare charity Orient Regeneration.
Orient Regeneration, also known as O-Regen, went into administration in 2011 following major financial problems. It was subject to an 18-month police investigation after Hackney Council made allegations of fraud.
However, Waltham Forest Police has dropped the investigation and Hackney Council is considering further action, including legal.
According to the Waltham Forest Gazette, police say they abandoned their enquiries due to the "content of a contract" with Hackney Council, but failed to elaborate further with the paper.
Conservative opposition leader Councillor Matt Davis, who was chair of Orient Regeneration’s board, told the local newspaper that he thought it was odd that police officers had only interviewed three people during the investigation.
A Hackney Council spokesperson said: "Hackney Council's enquiries concerning the payment of a grant to O-Regen remain ongoing and we are examining the options available to resolve performance irregularities concerning work that was carried out under the Council’s contract. The options available include legal action and for that reason we are unable to comment in more detail at this time on the specific content of our agreement and the criminal investigation that was undertaken."
Orient Regeneration had received the bulk of its income from grants. Its accounts for the year ending 2010 show it got £739,410 of its £1.3m income from grants, including £285,674 from Waltham Forest Council and £199,837 from the now-abolished Learning and Skills Council.