The New York Attorney General is suing the company of former Hollywood producer Harvey Weinstein for "egregious violations of New York's civil rights, human rights and business laws."
Eric Schneiderman said in a statement that the Weinstein Company "repeatedly broke New York law by failing to protect its employees from pervasive sexual harassment, intimidation, and discrimination."
The lawsuit, filed in New York County Supreme Court, was brought on by the attempted $500m sale of the movie studio to a former official of President Barack Obama's administration, Maria Contreras-Sweet.
Mr Weinstein has been accused by several women, including actresses Selma Hayek, Ashley Judd, and Lupita Nyong'o, of sexual harassment or abuse. Mr Weinstein has repeatedly said the allegations are false.
"Any sale of the company must ensure victims are adequately compensated, employees are protected, and that enablers of sexual misconduct will not be unjustly enriched," Mr Schneiderman tweeted.
The statement said that "every New Yorker has a right to a workplace free of sexual harassment, intimidation and fear."
Ms Sweet, who ran the US Small Business Administration from 2014 to 2017, had been in negotiations for several weeks and had promised to set up a majority female board and set up a fund to assist women who claimed Mr Weinstein sexually harassed them, according to the LA Times.
Mr Weinstein was fired from the company in the wake of the many allegations, which he ran with his brother Bob Weinstein.
Police in Los Angeles, New York, and London are all investigating the claims against the Oscar-winning producer.
The company is also facing multiple lawsuits, one alleging the company allowed Mr Weinstein's supposed behaviour to continue.
Mr Schneiderman also launched a civil rights investigation in October 2017.
His office has demanded an escrow be established for any money from the sale that would go to the Weinsteins as well as government oversight of the sale in order to ensure protection of employees.
The Weinstein Company may have to file for bankruptcy should the sale not go through.
The explosive New York Magazine report which first made public the charges against Mr Weinstein also sparked the #metoo social media movement for people to come forward about sexual harassment and abuse.
