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An SEC investigation might take place at times when a business is believed to be doing something wrong. This can give you the impression that a stock might not be worthwhile because that business is not as strong as people might think. A stock could be hurt by such an investigation.
An example of this was General Electric (NYSE: GE) stock. Although GE had been declining in value for a while, that decline became more pronounced around the last part of January 2018. The SEC investigated the company over GE reporting a $15 billion loss covered to manage miscalculations over one of its subsidiaries. The GE stock went from $19 to $16 in just a day after the SEC investigation started. Granted, this might not sound like much of a change, but this could be even worse if the stock was more expensive or if it was in the spotlight a long time. SEC investigations are more likely to develop when a business fails to produce enough information in their reports. This just reiterates that you should avoid a stock when it does not seem to have its SEC documents in order or it does not appear to have the proper information available to the public.
