The continuing probe into what happened to half of this country's flu vaccine supply last fall has moved up a notch. Chiron (NASDAQ:CHIR) announced that the SEC was upgrading its investigation to formal. Tuxedos are optional.

By now we're all familiar with the flu vaccine debacle that began initially as a small contamination problem with a single batch of flu vaccine but subsequently spread to infect all of Chiron's supply. British authorities shut down the biotech's manufacturing facility, suspended its license, and ordered all vaccine doses destroyed. The U.S. followed suit, launching an inquiry into the mishap and rationing supplies from competitor Sanofi Aventis (NYSE:SNY).

The SEC began an informal inquiry into the mess, but it has now upgraded the probe to include possible securities law violations.

Informal inquiries are actually quite common. The agency interviews witnesses and examines records, among other things, as it decides whether there is more to the story. Formal inquiries are less common, and they allow the regulator to subpoena individuals to testify and produce books and records -- including bank or brokerage records, corporate records, audit papers, and client identification records. The SEC can also initiate proceedings either before an administrative law judge or in federal district court, and, if violations are found, it may refer cases to the Department of Justice for prosecution.

There's no proof at this point that Chiron violated any laws, but the investigation is centering on whether the company misled investors about the extent of the contamination problem.

In late August of last year, the biotech company announced it had discovered a "small number of products" that failed to meet its stringent sterility requirements. It noted that the finding would cause a delay in shipment of its vaccine. The following month, Chiron CEO Howard Pien appeared before Congress, offering assurances that the company was on track to deliver its half of the country's supply. But just a week later, British authorities blindsided their U.S. counterparts and suspended the company's manufacturing license because of the contamination it found at the Liverpool facility. The question: Was Chiron more aware of the problems it faced than it seemed to be when it was trying to reassure Congress and investors?

Investors have been grasping at any straw lately. Any sign of hope for the company causes its stock price to jump up. Even though British regulators could make a ban on its license permanent, the stock jumped last month simply because CEO Pien noted the company had a plan in place to get its manufacturing facility clean. On Friday, the stock again soared 5%, despite the SEC's formal probe announcement, because the company said it was "making progress" in bringing the plant back into compliance.

Such speculation on the part of investors is just that, speculation. I'd like to think Chiron was as surprised by the contamination debacle as investors and U.S. regulators were, but I wouldn't bet money on it. It's possible to find good values in beaten-down stocks, particularly when emotion has overrun expectation. But Chiron's stock sits some 16% over its October lows, and for me there is too much uncertainty to place that bet. With the thousands of companies that exist without a Sword of Damocles over their heads, there's no need to risk money on one getting dressed to attend the SEC ball.

Chiron's foibles have been well-chronicled at the Fool:

Discuss the company's future on the Fool's Chiron discussion board.

Fool contributor Rich Duprey is happy his own foibles are not subject to public scrutiny. He does not own any of the stocks mentioned in this article.