Downing Street raises the prospect of officials denying the former Labour deputy leader a place in the House of Lords.
Operation Midland ended after 16 months without a single arrest, while Carl Beech - the fantasist behind the allegations - was jailed after being found guilty of 12 counts of perverting the course of justice and one of fraud.
Asked about Mr Watson's nomination, a Number 10 spokesman said:"It's not a matter for us, but I'm sure the House of Lords Appointments Commission will be considering the most up-to-date and relevant information."
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