Analysts at Wunderlich Securities downgraded Magnum Hunter Resources Corp MHR 3.57% on Monday following news of the Wells Notice the company recently received from the SEC.
While the notice itself is neither a formal accusation nor a ruling of wrongdoing, the uncertainty surrounding the inquiry was enough reason for Wunderlich to downgrade Magnum Hunter from Buy to Hold and suspend its price target for the stock.
What The Wells Notice Means
The notice that Magnum received is essentially a warning that the SEC may bring enforcement action against the company. Although the notice itself has very little teeth, analysts believe that at the very least, it will put a halt to the company’s recent positive operating momentum.
However, depending on the details of the notice, the company could also be stuck with stiff penalties if the SEC determines that violations have occurred.
The Details
According to Wunderlich, Magnum Hunter received the Wells Notice on March 24, and the SEC is conducting an inquiry into the company’s internal controls, its change in outside auditors during 2012 and 2013, and its public statements made to investors.
The company switched auditors from PricewaterhouseCoopers to BDO in April of 2013 and held a conference to explain that Magnum Hunter had no auditing or financial issues.
Outlook
Wunderlich analysts believe Magnum Hunter’s stock will likely be adversely affected at least until details about the SEC’s intentions become clear.
“The staff’s recommendation may involve a civil injunctive action, public administrative proceeding, and/or cease-and-desist proceeding, and may seek remedies that might include a cease-and-desist order, injunctions, disgorgement with pre-judgement interest, and civil money penalties,” analysts explain in the report.
Magnum Hunter’s stock is down 8.0 percent in its first day of trading since the company disclosed the Wells Notice.
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