Swiss Art dealer Yves Bouvier was charged on Monday by a Paris court, although he categorically denies committing any offence.
The 52-year-old, under investigation for repeated theft, must hand over €27 million ($31 million) in caution money -- the sum said to have been paid by Russian billionaire Dmitri Rybolovlev for two Picasso masterpieces, including "Woman with Fan", and 58 drawings.
The investigation was opened after a complaint in March by Catherine Hutin-Blay, the iconic painter's step-daughter.
She claimed, after a Brazilian restoration expert raised the alarm, that several artworks that belonged to her had been stolen.
Two years earlier, the expert had been commissioned to restore and prepare artworks by Picasso for use as murals using a technique known as marouflage.
The artworks he was told to restore were part of a collection owned by 68-year-old Hutin-Blay, who believed they were in storage in Gennevilliers near Paris since 2008.
But once they were restored, the paintings were taken to a Swiss company owned by Bouvier to be put on show and sold to Rybolovlev -- the majority owner and president of French football club AS Monaco.
In a statement on Monday Bouvier denied any wrongdoing, and said he handed over to the court proof that the artworks he sold to Rybolovlev had been "bought from a trust presented as being that of Catherine Hutin-Blay".
The name of the art dealer whom Bouvier claims sold him the Picasso paintings and drawings "has been transmitted to the judge Rich-Flament, but won't be publicly released by Yves Bouvier", the statement said.
Hutin-Blay challenged Bouvier's defence, claiming in a statement she "never consented or received payment for the sales of 'Woman's Head', 'Woman with a Fan' or the 58 drawings".
She added that she does not know Bouvier.
Bouvier earlier this year had millions of euros worth of assets frozen after he was sued for fraud by none other than the Russian tycoon Rybolovlev.
Singapore's highest court unfroze Bouvier's assets in August, with the dealer rejecting allegations he had inflated the price of 38 artworks.
Bouvier operates vaults in Singapore and Luxembourg where wealthy clients can store their art and other valuables.
The first version of this story wrongly stated that Mr Bouvier had been charged with stealing the paintings. AFP has since corrected this error.