Law enforcement sources tell TMZ that they have photographic evidence proving Lohan, 23, knows the location of the Rolex, which belongs to her friend. Police questioned the actress about the watch at her house Wednesday, but Lohan denied that she stole it.
"The allegations are completely untrue," her lawyer, Shawn Chapman Holley, tells TMZ. The Web site reports that a friend accidentally left the Rolex at Lohan's home earlier this year and never got it back.
Sheriff's spokesman Steve Whitmore says, "We took a lost property report on April 5, 2010 involving a Rolex watch valued at $32,000. We began to look into the case, but the person who filed the report said she no longer wanted us to investigate, so we closed the case [on April 22]. We never determined if a crime was committed. We're not releasing the identity of the person who filed the report."
The case of the missing watch is merely the latest drama surrounding the starlet. On Thursday, her estranged father Michael Lohan brought police to her house to perform a welfare check on his younger daughter Ali, 16, who was staying with Lindsay. After questioning Ali, police let her remain with her sister.