WASHINGTON (Reuters) - The U.S. Federal Trade Commission said on Wednesday it had filed a complaint aimed at forcing Marlboro maker Altria Group to sell its investment in e-cigarette maker Juul Labs Inc.

FILE PHOTO: Federal Trade Commission seal is seen at a news conference to announce that Facebook Inc has agreed to a settlement of allegations it mishandled user privacy at FTC Headquarters in Washington, U.S., July 24, 2019. REUTERS/Yuri Gripas

The FTC has probed Altria’s decision to buy a 35% stake in Juul, announced in December 2018, for $12.8 billion. The value of the investment has dwindled to $4.2 billion, following a series of writedowns last year, as Juul faced litigation and heightened regulatory scrutiny over its contribution to a surge in teenage vaping.

Altria and Juul were once competitors in the e-cigarette market. The FTC alleges that once Juul skyrocketed to become the market-leading e-cigarette maker in 2018, Altria dealt with the competition by “agreeing not to compete in return for a substantial ownership interest in Juul.”

“Altria and Juul turned from competitors to collaborators by eliminating competition and sharing in Juul’s profits,” said Ian Conner, director of the FTC’s Bureau of Competition.

Juul did not respond to a request for comment. Altria said it planned to “vigorously defend our investment.”

“We believe that our investment in Juul does not harm competition and that the FTC misunderstood the facts,” said Murray Garnick, Altria’s executive vice president and general counsel.

Altria’s MarkTen was at one point the second most popular e-cigarette maker, the FTC said. The FTC said Altria responded to Juul’s threat to its business by agreeing not to compete in exchange for Altria’s investment in the company.

Altria announced it would discontinue its MarkTen brand a few weeks before formally announcing the Juul investment in December 2018.

The FTC announcement is the beginning of what is likely to be a lengthy process and adds to a relentless series of regulatory headaches for Juul over the past year. The company stopped selling popular flavors such as mango and mint in the United States amid pressure from regulators and lawmakers, and shed hundreds of workers as it retooled under new management.

The company is facing a critical regulatory deadline later this year to prove that its products provide a net benefit to public health, meaning they aid smokers in quitting more than they lure teenagers or non-users into nicotine addiction.

Altria is Juul’s largest investor, and a forced divestiture would raise substantial questions for the e-cigarette maker’s future.

Although the Juul investment has become a disappointing one for Altria, the cigarette maker would be left searching for alternative products. Altria initially believed Juul could play a major role in offsetting declining cigarette sales. In January, the company projected U.S. cigarette sales would decline 4% to 6% this year.

Altria said in late March that Chief Executive Officer Howard Willard has contracted the coronavirus and is taking temporary medical leave. Chief Financial Officer William Gifford Jr is taking over in his absence, the company disclosed on Friday.

In October, Altria had acknowledged that U.S. antitrust enforcers were also looking into allegations that it had potentially exerted influence over Juul before winning approval for the big share buy.

Prior to antitrust approval, it is illegal for companies involved in mergers or similar transactions to coordinate in many areas.