NEW YORK (CNN/Money) - Qwest Communications International Inc. is being investigated by the U.S. Attorney's office in Denver -- the latest setback for the local telephone company serving 14 Midwest and Western states.

The company's one-paragraph statement Wednesday said federal prosecutors did not disclose the subject of the investigation. The Denver U.S. Attorney's office confirmed the probe but would give no further details.

But investors were unnerved. Qwest shares tumbled 83 cents, or 32 percent, to $1.77 Wednesday afternoon, widening its year-to-date loss to 88 percent. More than 62 million shares changed hands.

Qwest previously had admitted it was under investigation by the Securities and Exchange Commission, receiving a subpoena from the agency for documents concerning bankrupt telecom Global Crossing Ltd.

The CEO who built the company, Joseph Nacchio, resigned last month. And credit ratings agencies have slashed Qwest's ratings to "junk" status, making it tougher for the company to borrow money.

Two rating ratings agencies, Fitch and Moody's Investors Service, further downgraded the company's $26 billion in debt late Wednesday

"The criminal investigation coupled with ongoing SEC investigations will significantly diminish the company's ability to sell assets in the timeframe previously contemplated," Fitch said.

Fitch cuts its Qwest debt rating to 'B' from 'BBB' while Moody's lowered it to 'B2' from 'Ba2.'

"The [telecom] industry doesn't need another scandal," independent telecommunications industry analyst Jeff Kagan told Reuters. "We'll just have to wait and see what's uncovered."

The news comes two weeks after WorldCom (WCOME: Research, Estimates) said it overstated profits by hiding $3.8 billion in expenses. The SEC has charged that company with fraud.

The mounting corporate scandals have taken a toll. President Bush came to Wall Street Tuesday, calling for higher ethical standards in corporate America and tougher penalties for executives and companies that break the rules.

The Senate is debating a bill that prescribes a very long laundry list of remedies, including the establishment of a powerful independent board to oversee accounting.

But prospects for reform have yet to soothe the market. The Nasdaq composite index slipped to a fresh five-year low Wednesday.

Just last Friday Qwest issued a statement denying it was the subject of a Justice Department probe following a report in the Wall Street Journal that the alleged accounting problems had prompted a criminal probe.

Neither Qwest nor the Denver U.S. Attorney's office would say anything about the scope of the probe.

But Martin Pollner, an attorney who has defended companies accused of wrongdoing by federal agencies, said U.S. attorneys typically open probes after referrals from federal agencies like the Federal Bureau of Investigation or the Internal Revenue Service, or under their own initiative.

Officials interview witnesses and subpoena financial records, phone logs, e-mails and the like, said Pollner, a former deputy attorney general under Robert F. Kennedy.

Another attorney, who handles securities defense cases, said it was unlikely Qwest did not know the probe's scope.

"Right now they're scurrying around in Denver in a panic," said the attorney, who asked not to be identified. "You can be damn sure they know what it's about. This didn't come out of left field."

The Denver-based company provides services in Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming.  

-- Reuters contributed to the report