Bristol-Myers Squibb Co. (BMY) on Thursday said it is under investigation by U.S. regulators after the company inflated earnings by enticing wholesalers to overstock more than $1 billion in drugs.

Shares of Bristol-Myers, already reeling from a stream of setbacks, fell as much as 16 percent to a five-year low as it became the latest company to rattle Wall Street because of a Securities and Exchange Commission investigation.

But the stock, the second-most active issue on the New York Stock Exchange, climbed back from below $20 — the first time it was that low since late 1996 — to close down 4.5 percent.

"The SEC has not stated to the company that it has done anything improper in connection with the inventory situation," the New York drug giant said in a release.

The firm said it had been meeting with SEC officials since April regarding the bloated inventories and that its accounting treatment of the excessive sales was "completely appropriate."

Coming on top of a slew of SEC investigations into accounting scandals at Enron, Global Crossing and WorldCom, investor reaction to the probe was understandable, analysts said.

"There's no question the market is spooked about the SEC probe. It's feeding investor uncertainty in the era of WorldCom," said Arnhold & S. Bleichroeder analyst Richard Stover.

Bristol-Myers is grappling with the loss of U.S. monopolies on three key drugs, poor trial results for a hypertension treatment that was billed as a future blockbuster and a troubled $2 billion partnership with ImClone Systems Inc. , itself enmeshed in an insider trading probe.

The company's many woes have put Bristol Chief Executive Peter Dolan, just 15 months on the job, on tenterhooks with investors and reportedly with his own board of directors. The stock is down 57 percent so far this year.

After an initial plunge, shares pared some losses to close down $1.04 to $22.11.

No Sign of Malfeasance

Analysts have said Bristol persuaded wholesalers late last year to load up on diabetes treatment Glucophage and a handful of other medicines by announcing that prices would soon go up.

Wholesalers scooped up such large supplies of the drugs that Bristol reported 9 percent growth in earnings in the fourth quarter. But the company acknowledged in April that wholesalers had overstocked so heavily they would make minimal purchases this year. Largely as a result, it warned 2002 earnings would decline as much as 46 percent from a year ago.

Although Bristol blundered by coaxing wholesalers to grossly overbuy its products, there's no evidence so far it did anything illegal or blatantly improper, Stover said.

"But there's no question the situation resulted in earnings that could not be sustained," Stover added.

Standard & Poor's said it may downgrade credit ratings of Bristol debt because of the SEC probe, and the price of the company's bonds fell.

Although Chief Financial Officer Fred Schiff and worldwide medicines boss Richard Lane were replaced in the wake of the inventory snafu, many industry analysts said Dolan shared the blame. They have accused him of failing to do his homework before licensing ImClone's experimental cancer drug, Erbitux, the most expensive deal in history for a biotech product.

Only months later, in late December, the U.S. Food and Drug Administration refused to review the Erbitux marketing application, citing inadequate data.

ImClone Chief Executive Samuel Waksal resigned in May after the SEC and Congress began probing whether ImClone misled investors about prospects for Erbitux and whether he and his brother Harlan, who took over as ImClone's CEO, made illegal insider trades of company stock.

Bristol recently lost U.S. patent protection on Glucopage, cancer drug Taxol, and BuSpar, which treats anxiety. Combined sales of the three drugs plunged 90 percent to only $87 million in the first quarter from a year ago as patients opted for cheaper copycat medicines.

Banc of Securities analyst Len Yaffe said Bristol's earnings will continue to suffer from the patent expirations, the delay in launching Erbitux and the inventory problems.

But he said the company hopes to launch four drugs in the next few years that could help restore earnings growth. They include Vanlev for hypertension, antibiotic Des-Quinolone, HIV treatment Atazanavir and a schizophrenia drug called Aripiprazole that has blockbuster potential.