Turmoil seems to be the status quo for software developer Critical Path (NASDAQ:CPTH). In 2002, for example, several former executives pleaded guilty to criminal securities fraud charges in the wake of an accounting scandal.

Last week, Critical Path's auditor inserted a bomb into the company's 8-K. According to PricewaterhouseCoopers:

The company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern.

This is accounting-speak for a company possibly headed for oblivion. So, it should be no shock that investors sent the stock to the emergency room (the plunge was about 23% last Friday, and a bit more for good measure, this morning).

Bad news can result in a death spiral for a tech company, especially in an intensely competitive sector. Sadly for Critical Path, industry giants Sun Microsystems (NASDAQ:SUNW), Oracle (NASDAQ:ORCL), Microsoft (NASDAQ:MSFT) and Novell (NASDAQ:NOVL) are just some of the wolves at the door.

Meanwhile, with aggregate losses of $2.2 billion, the only time the company seems to perform is when management is falsifying its accounting. Critical Path has always been a money-loser, staying afloat primarily by passing the hat to big-time investors.

Just last month, Critical Path did it again, selling convertible notes for $10 million to General Atlantic Partners and others, and will likely need more. The $10 million financing was already very expensive, with a 10% coupon, preference rights, and a conversion right for 6.7 million Series E preferred shares (with accrued dividends at a 5 3/4% rate).

Critical Path is a company with little leverage, which is why its latest financing is really a cram down. With subsequent financing, at its distressed market cap of $25 million, likely to be punitive, buying the common stock could be, well, a critical mistake.

Tom Taulli is the author of six books on investing and finance, such as the Complete M&A Handbook (Random House). You can reach him at tom@taulli.com.