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Updated from noon Eastern

CMS Energy

(CMS) - Get Free Report

, notorious for its use of so-called round-trip energy trades, set plans Tuesday to revise two years' worth of financial statements that benefited from the controversial practice.

Shares of CMS tumbled 10% Tuesday on news of the restatement, a warning from the company's departing auditor and an analyst downgrade; later, several credit-rating agencies cut their ratings on the company's debt. The company's stock has plummeted some 40% over the last year as questions about accounting and business practices fuel a meltdown throughout the energy trading industry.

Arthur Andersen, which ended its auditing relationship with CMS today, said its historical opinions of CMS's 2000 and 2001 financial statements "cannot be relied upon" because of round-trip trades that are now under investigation. CMS has confessed to artificially inflating its revenue by more than $4.4 billion by performing identical power trades that have no real economic value.

The swaps involved buying electricity from other energy companies at a set price, then selling it back to them at the same price. The practice has been scrutinized by the Federal Energy Regulatory Commission and the

Securities and Exchange Commission

.

Ernst & Young, previously announced as CMS's replacement for Andersen, is slated to revise the company's financial statements after an internal investigation of CMS's round-trip trading practices is concluded.¿

"It is prudent to wait for the special committee's investigation to be completed before publishing restated financial statements," said CMS Chief Financial Officer Alan M. Wright.

Merrill Lynch downgraded CMS's stock from buy to neutral on the warning from Andersen, citing concerns about its timing. CMS is currently negotiating a bank facility that expires Monday.

Merrill said CMS continues to face substantial risks -- including investigations by energy and securities regulators -- that could weigh heavily on the company's stock price.