(Updates with details, background)
LISBON, Jan 6 (Reuters) - Portugal's prosecutor general has carried out searches at Portugal Telecom SGPS on suspicion of fraud related to an investigation into the company's financial investments, the prosecutor said on Tuesday.
The prosecutor's office said in a statement the investigation was taking place together with the CMVM market regulator, judicial police and tax authorities.
"This investigation relates to suspicions...of fraud, with the financial investments of the company being under investigation," the prosecutor said.
Paulo de Sa e Cunha, the lawyer representing PT SGPS, told journalists "the searches are taking place as people already know."
He added that the case was covered by Portugal's legal secrecy laws, which mean that details cannot be made public. Nobody at the company commented.
Shares in Portugal Telecom were 2.09 percent lower.
Portugal Telecom made an investment of nearly 900 million euros last year in commercial paper issued by Rioforte, a holding company of the Espirito Santo banking family, just a few months before Rioforte and the family went bankrupt.
The default led to the resignation of Portugal Telecom SGPS chairman Henrique Granadeiro in August. Portugal Telecom said at the time that its executive board had never approved or discussed any investment in debt issued by Rioforte.
Granadeiro has been cited as saying he was sure that an audit of the investment "will show that I always acted in the interests of PT, its employees and its shareholders."
Rioforte defaulted on the loans, which led to a revision of the merger terms between Portugal Telecom and Brazilian telecom group Oi, leaving Portugal Telecom with a smaller stake in the new, combined company.
The chief executive of Oi, Zeinal Bava, who was the former head of Portugal Telecom, also resigned his post at Oi after the default.
The merger is now effectively being undone as Oi is selling the telecom assets of Portugal Telecom to telecoms group Altice .
At the time that news of Portugal Telecom's investment first emerged last summer, it said the investment was based on 14 years of experience of investing in treasury applications of the Espirito Santo Group and Banco Espirito Santo. BES collapsed in August as the bank that the Espirito Santo family founded crumbled under the family's debts.
BES was the biggest shareholder in Portugal Telecom before its collapse and PT also held a big stake in BES. (Reporting By Axel Bugge and Daniel Alvarenga; Editing by Angus MacSwan)