Call this the panic-and-sell payoff.

Some investors who bought into

CheckFree's

(CKFR)

disastrous $148 million secondary offering Monday could've actually made money despite the stock's free fall Wednesday.

Here's the

Reader's Digest

version: Investors who turned around and sold their newly acquired shares now are holding profitable short positions because the company pulled the secondary offering Thursday morning.

The bizarre situation has embarrassed the Atlanta-based electronic billing service and its lead underwriter,

Merrill Lynch

(MER)

. A CheckFree spokeswoman says the deal didn't anger shareholders, especially those who sold the stock. "Investors who were exposed can cost-effectively go into the market and get the shares," says a CheckFree spokeswoman. A Merrill spokesman declined to comment.

The story began Monday, when Merrill priced 3.8 million CheckFree shares at 39 each. CheckFree wanted the money for unspecified capital uses, according to its prospectus. More than one-third of the shares offered were sold by shareholders including Pete Kight, CheckFree's chairman and chief executive.

On Wednesday, three major banks --

Chase Manhattan

(CMB)

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,

First Union

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and

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

-- announced they were creating a joint venture called

The Exchange

, an electronic billing company that would compete with CheckFree.

CheckFree's stock plummeted on the news, dropping 8 15/16, or 24%, Wednesday to close at 28 3/4. So investors who had committed to buy shares in the secondary at 39 faced an immediate 26% loss. There also was speculation that CheckFree may have known the competition was coming and rushed the secondary out the door.

Ahead of the open Thursday morning, CheckFree said it was canceling the secondary offering. In a press release, CheckFree said it had no knowledge of the competing plan. "I don't ever want to walk back into the offices of these analysts and portfolio managers and have to think that they might be wondering whether we had been honest with them," Kight said in the release.

CheckFree was able to cancel the deal because the stock hadn't been delivered yet. There is generally a two- or three-day lag between a stock's pricing and its delivery, which occurs on what is known as settlement day. Such cancellations are rare, and they simply nullify the sale of the shares.

But this story was complicated by the fact that so many investors apparently sold because of the news. These investors were left with a naked short position, says one investment banker involved in the deal. That's because the deal's cancellation ostensibly erases the investors' purchases, but not their subsequent sales. (A short position is a bet in which the investor borrows stock and sells it with the assumption he can buy it back later at a cheaper price. The naked part means that bet is unhedged, or made without any long position in the stock as a buffer.)

"Since the stock is still down, most of them are better off," says the banker.

The good news for investors works this way: Those who panicked as the stock fell and sold Wednesday at prices below 39 now have a chance to buy back their accidental short positions by buying at the current, lower, price. (CheckFree's shares closed Thursday at 28 1/8, down 9/16.) They can then take those shares and fulfill their sale agreement, pocketing the difference between what they paid for the shares and their selling price.

Several rival Wall Street bankers couldn't help chuckling at the misstep. "I think it shows that investors didn't have a lot of confidence that Merrill would support the secondary offering price -- that's why they sold," one rival banker says.