The head of Bio-On was arrested on Wednesday in a probe into false accounting and market manipulation, just three months after the Bologna-based company suffered an attack by a short seller fund that erased 80% of its value.

The bank, which advised Bio-On with its initial public offering in 2014, did not confirm its offices had been searched, but said in an emailed statement on Friday it hoped authorities would clarify the situation as soon as possible.

"Banca Finnat confirms it will cooperate fully with prosecutors and market authorities and is evaluating the whole situation to assess whether conditions are in place to take action to preserve its interests," it said.

Banca Finnat has a 15 million euro credit exposure to Bio-on and a 10% stake in two of the company's joint ventures.

The tax police's raid occurred on Wednesday morning, the source said, confirming a report in daily newspaper La Stampa and adding that documents were seized by tax police at Banca Finnat headquarters.

On the same day Bio-On's Chief Executive and Chairman Marco Astorri was placed under house arrest as part of the investigation.

(Reporting by Giulio Piovaccari; Editing by Toby Chopra)