Updated from 10:24 a.m. ESTTroubled real-estate developer Mills Corp. ( MLS) is now facing a formal investigation by the Securities and Exchange Commission, and the probe could deter a possible sale of the company. The SEC's upgraded investigation, along with mounting shareholder litigation, is driving away Vornado Realty Trust's ( VNO ) interest in buying Mills, according to a person familiar with Vornado's thinking. In a filing Wednesday, Mills said the SEC informed it on March 20 that a previously informal probe had been upgraded. The SEC's interest comes as the real estate investment trust works to complete a 10-K filing that was delayed by an accounting restatement. Mills shares fell $2.11, or 7%, to $28.31 Thursday. The shares have slid from above $60 last fall as the company has coped with the restatement, shareholder suits and rising analyst skepticism. In late February, the company said it had hired a financial adviser to explore strategic alternatives, including a possible sale. "The company has fully cooperated, and intends to continue to fully cooperate, with the SEC," Mills said in a federal filing. Formalization of an SEC probe lets the agency mail subpoenas. "This news does not come as much of a surprise to us given three earnings restatements since 2003 and the news in an 8-K filing last week that additional restatements are expected," wrote Banc of America Securities analyst Ross Nussbaum in a research note. Nussbaum, who slapped a sell rating on Mills earlier this week, expects the firm to eventually cut its dividend up to 50% to free up cash in the near term. Vornado Realty, a REIT that owns several regional malls and lucrative retail real estate in New York City and the tri-state area, confirmed publicly in recent weeks that it had conducted informal talks with Mills' management about some sort of sale.