NEW YORK (CNN/Money) - AOL Time Warner stock tumbled Thursday as investors reacted to its disclosure that the Securities and Exchange Commission is probing the accounting practices of the world's largest media company.

CEO Richard Parsons, speaking on AOL Time Warner's quarterly earnings call Wednesday, said the SEC is conducting what he called a fact-finding inquiry into its accounting practices in reaction to allegations raised in two articles in the Washington Post last week. Parsons said the Post's allegations were without merit.

Shares of AOL Time Warner (AOL: Research, Estimates), the parent company of CNN/Money, tumbled $1.75, or more than 15 percent, to $9.64 Thursday, after touching a low of $8.70 during the session. It was the lowest for the stock of AOL, which acquired Time Warner last year, since August 1998.

Parsons said that the company's accountants, Ernst & Young, signed off on the accounting at the time of the transactions and then again when the issue was brought up after the Post articles. Further, he said that AOL Time Warner called the SEC prior to the Post articles appearing. "After the articles came out, the SEC informed us that they are conducting a fact-finding inquiry," he said.

The revelation of the SEC investigation sparked a flurry of downgrades on Thursday. Analysts at Merrill Lynch, Goldman Sachs and Salomon Smith Barney all lowered their ratings on the stock. Still, some investors said word of the investigation should hardly have been a surprise.

"This was the most anticipated SEC investigation in the history of the free world," said Seth Tobias, of the New York-based hedge fund Circle-T. Tobias said he owned AOL Time Warner stock and was buying more Thursday.

It has been the SEC's practice to investigate allegations of improper accounting raised by the media. In reaction to an article in the New York Times earlier this year, the SEC looked into IBM's accounting. It said that it closed its preliminary investigation shortly afterward, taking no action. As is the SEC's practice, a spokesman said it would not comment on the inquiry.

The Post articles said that AOL Time Warner's America Online unit had inflated revenue by more than $270 million by booking questionable advertising revenue from 2000 to 2002, mainly through barter agreements and swaps. While AOL Time Warner management has noted that the revenue the Post questioned represented less than 2 percent of total sales during the period, investors worry that more trouble could lurk in the company's books.

"There's so many cross-currents here, it's really tough to call," said one Wall Street trader. "I'd leave the stock alone."

Even before the Post articles, shares of AOL Time Warner were under heavy pressure. In part this was because it, like other media companies, used EBITDA, or earnings before interest, taxes, depreciation and amortization. EBITDA accounting has been discredited in the eyes of many investors since the revelation that WorldCom manipulated the accounting convention to overstate results.

AOL Time Warner shares have fallen 72 percent this year and are 90 percent below their all-time high as investors have expressed disappointment that the merger was a failure.

Meanwhile, the New York-based company late Wednesday reported second-quarter cash earnings excluding one-time charges and other costs of 24 cents a share, which topped the consensus earnings per share forecast of 22 cents, according to earnings tracker First Call.

"Overall, I'm pleased with the results from most of our businesses," Parsons said.

The company credited releases of home videos and DVD versions of popular films, including "Harry Potter and the Sorcerer's Stone" and "Ocean's Eleven," with helping its Warner Brothers unit and other divisions. The company had cash earnings of $9.9 billion in 2001.

But looking ahead, the company said cash earnings -- or EBITDA -- will fall to the lower end of its previously announced range of 5-to-9 percent growth for the full year, due to continued weakness in the advertising at its Internet unit, America Online unit. AOL saw sales drop 11 percent due to weak online advertising market.

For the third quarter, the company said it expects cash earnings to be flat to a low-single digit percentage gain compared with a year ago.

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Amid the worst bear market in a generation, few stocks have disappointed as much as AOL.

Robert Pittman, who came from the AOL side of the company, resigned under pressure last week as chief operating officer. A series of management changes made at the same time gave more power to Time Warner veterans, although Time Warner was bought by AOL.

That purchase, announced in early 2000 at the height of the bull market and completed a year later, came with the promise of double-digit growth as the merged company's Internet and media properties cross-marketed each other.

Executives on Wednesday did not address questions about a possible AOL spinoff and the likelihood of a spinoff of the cable operations as part of a deal to unwind its Time Warner Entertainment.

Instead, Parsons, the CEO who replaced Jerry Levin in May, focused on what he hopes are better times ahead for the company.

"I'm confident we are making the right moves," he said. "We have all the pieces we need to succeed."