Telefonica president Juan Villalonga has found himself at the centre of yet another media storm after a report in Spanish daily newspaper El Mundo that he benefited from insider information in the purchase of Telefonica stock options in 1998.

According to El Mundo, Villalonga bought 264,224 stock options in the company with a $1.2m (PTS200m) loan in January of 1998, during negotiations between the Spanish telco and WorldCom-MCI.

Spain's National Market Value Commission (CNMV) has re-opened a 1998 investigation into the transaction, giving an official stamp to the accusations of insider trading. Spanish president Jose Maria Aznar, further distancing himself from his long-time friend and former ally, weighed in his support for the investigation of Villalonga's actions.

Telefonica shares have taken a steep 11.3% fall on the stock market in response to the news. The devaluation could affect Telefonica's share-for-share takeover of Dutch entertainment giant Endemol. Subsidiary Terra's buy-out of US internet company Lycos could also be affected.

These latest developments have renewed speculation about the stability of Villalonga's position at Telefonica. It is unknown whether Telefonica's main shareholders, BBVA and La Caixa, will support him through this difficult period. Relations between Villalonga and his two leading shareholders have been rocky since the two sided with the Spanish government in opposing merger talks with Dutch telco KPN last month.