Updated from 7:55 a.m. EDT

The situation worsens for

Career Education

(CECO) - Get Report

investors who watched allegations of recordkeeping malfeasance knock 16% out of the stock last Friday.

The Hoffman Estates, Ill., higher-education firm plunged anew Wednesday after disclosing it had received a formal order of investigation from the

Securities and Exchange Commission.

While the company had previously disclosed an SEC inquiry, analysts warned that its formalization could intensify the scrutiny. Career Education vowed to cooperate fully with the probe.

Wednesday morning, Career Education was down $10.88, or 18.5%, to $47.70, bringing its four-session decline to more than 30%. The selling has done a lot to deflate the company's previously lofty price/earnings ratio, a valuation that steadily fattened as the shares rose from about $20 at the start of 2003. At current levels, Career Education fetches 28 times next year's Thomson First Call consensus of $1.78 a share and 22 times the 2005 estimate of $2.27.

Career Education has twice weathered stories about employees who supposedly claim the company doctors enrollment records to inflate government reimbursements. The shares lost about a quarter of their value Dec. 3, 2003, when California's

Santa Barbara News-Press

quoted a former registrar at the Brooks Institute of Photography who said "officials at the school acted illegally and improperly to inflate enrollment and boost the bottom line."

In November 2003,

Bergen Record

in New Jersey, reported that a former director of career services at its Gibbs College claimed in a lawsuit that she was fired for refusing to falsify student records.

In both cases the company dismissed the allegations as baseless and saw its shares recover everything they lost. It remains to be seen if the same scenario will obtain following claims in a shareholder suit publicized last Friday claiming that at least 12 former employees claimed similar hanky-panky in Career Education's bookkeeping department, the allegation that sparked the most recent selloff.

Almost all the publicly traded education stocks have major institutional followings, which often exacerbates the amount of sympathy selling the shares see in the wake of news like Career Ed's. Wednesday morning,

Corinthian Education


was down $1.26, or 4.7%, to $25.64, while

ITT Education

(ESI) - Get Report

was down $1.70, or 4.2%, to $38.66 and

Apollo Group


was down $3.61, or 3.8%, to $90.56.