Merchant energy stocks have settled into another day of sinking, buried by more accounting controversies. Atlanta-based Mirant ( MIR) revealed Monday that it has become the latest industry player facing questions from the Securities and Exchange Commission. Various probes of the industry's business and accounting practices over the past year have helped change the sector from one of Wall Street's favorites to one that most investors can't flee fast enough.
Mirant attributed the regulatory probe to minor accounting discrepancies the company disclosed last week, saying the questioning amounted to business as usual in this beleaguered industry. "The notification letter we received did not surprise us," said Doug Miller, senior vice president and general counsel at Mirant. "When companies report accounting issues, informal inquiries from the SEC usually follow, especially in this day and age." Mirant warned of a possible accounting overstatement, involving roughly $250 million in assets and receivables, when posting second-quarter earnings last week. Although the market originally focused on Mirant's strong quarterly performance -- which outpaced expectations -- it punished the stock on Monday's news of the SEC inquiry. Shares of Mirant tumbled 10.3% to $3.13 in midday trading. The sectorwide selloff reversed last week's brief revival in many of these stocks as a number of companies reached agreements that dispelled liquidity worries, at least for the moment. Shares of Dynegy ( DYN) and Williams ( WMB) -- which have traded in unison in recent weeks -- fell even harder. Dynegy's stock toppled on news of a lawsuit filed against the company on Friday. The lawsuit accuses Dynegy of firing ex-controller Bradley P. Farnsworth after he refused to falsify financial statements in order to meet quarterly earnings targets. Dynegy has described the complaint as unfounded and even threatened a possible countersuit. That reassurance didn't stop Dynegy's bleeding, which started last week over possible complications with a $1.8 billion pipeline sale needed to save the company from a cash crunch. Shares of Dynegy were down 12.3% to $1.86 in midday trading, further erasing sharp gains the stock posted during a recent rally from 77 cents to $3.50. Williams continued to ride shotgun on the Dynegy roller coaster Monday. The Tulsa-based energy concern, which last week topped Dynegy's pipeline sale with a flurry of last-minute financing, slid 18% to $2.79 as questions continued to linger about the price the company paid to avoid bankruptcy. Williams has yet to disclose the interest rates for its new loans and the collateral pledged to secure one of them. The company's stock has dropped precipitously, falling from a high of $4.30, since the financing was first announced last week. Shares of El Paso ( EP) came under pressure Monday as well. The stock shed 4.9% to hit $14.55 three days before the company is due to post second-quarter results. The Houston-based energy trader has recently attracted widespread scrutiny for its liberal use of off balance sheet financing vehicles similar to those that toppled now-bankrupt Enron. Elsewhere in the industry, Calpine ( CPN) continued to buckle under selling pressure, dropping 8.4% to $3.39 following last week's news of a weak second quarter and a gloomy outlook for the full year. Other losers included Aquila ( ILA), down 5.6% to $5.92, and Xcel ( XEL), down 4.3% to $6.64.