Agency holding company MDC Partners was one of the worst performing stocks on NASDAQ on Tuesday as investors turned away from the firm in light of news that it is under investigation by the SEC for financial irregularities.
Company CEO Miles Nadal has agreed to repay the company $8.6 million that he expensed improperly from 2009-2014, MDC confirmed Monday, also indicating that the SEC investigation is ongoing. The commission has sought information about certain MDC accounting procedures as well as information related to trading in the company’s stock by third parties.
The stock fell 27.81% during the trading day, opening at $21.59 and briefly reaching a low of $18 before closing at $20.20. The previous day’s close was $27.98. Wall Street analysts had previously pegged the stock at $30, with some going as high as $35 before yesterday's disclosure.
This drop-off follows several analyst reports downgrading the company’s stock. Analysts at Albert Fried lowered its recommendations from 'Overweight' to 'Market Perform.'
And BMO Capital Markets' report lowered its target to $26 from $30, though there are no changes to its 2015-16 EBITDA estimates. The firm’s view on MDC’s fundamentals remains the same. However, "we cannot recommend the stock until we have visibility on the investigation. We have long supported CEO Nadal’s vision and particularly his aggressive (and very successful) M&A strategy over the past 5-6 years. We also have defended his personal style, which we believe engenders loyalty from his top employees, even if it can rub some investors the wrong way.
But, the report noted, “we also recognize that MDC has faced questions about fiduciary responsibility previously (largely before the arrival of CFO Doft in 2006 and before we covered the stock) and so the investigation may resurrect doubts. We don’t expect material financial impact, but we expect the stock to be range-bound until this issue is addressed."
This story has been updated.