What I want to know about

CHS

(HS)

, as I want to know about most of the companies that blow up, is why the short-sellers seemed to know about serious problems before the company itself did.

This column started questioning the earnings at CHS

last May, when the Miami-based electronics distributor failed to disclose in an earnings release and subsequent conference call with analysts that the only reason it beat the quarter's estimates was because of a foreign-currency transaction. Most companies include

that

kind of gain in the original earnings press release. The only way anybody would've known about it at CHS was to read it in the 10-Q released several weeks later.

The foreign-exchange transaction oversight was just one of several CHS-related controversies, including sales to quasirelated companies, that were mentioned here then and in subsequent columns. Many of the questionable transactions were a mere drop in the bucket, but as this column noted, "A drop here and a drop there and pretty soon you've got what appears to be a flood of earnings when, in reality, it's just a trickle."

And a trickle is all it ever really was. Earlier today the company, after making adjustments to reflect that it had overstated vendor rebates in the second, third and fourth quarters, disclosed that fourth-quarter earnings were half what they were a year earlier and one-third of what Wall Street had been expecting. The third and fourth quarters are also being restated. CHS said the problem was limited to its European headquarters office, as if to say the damage was limited. However, in keeping with its history of not telling the entire story, what it fails to say is that Eastern and Western Europe accounts for roughly three-quarters of all sales (or at least they do if you believe what the company has told analysts on conference calls).

This is the same company whose CEO, Claudio Osorio,

in June declared war on short-sellers, who had been alleging as far back as last spring that his company's accounting was

overly aggressive if not downright crooked. Such bravado and arrogance is a classic sign that a company may be trying to hide something, and the hint that something bad was about to occur was the sharp increase in sales of CHS stock by execs who had sold their companies to CHS for stock and cash. Recent sales were at rock-bottom lows, "showing they wanted liquidity at all costs," one short-seller says.

First official word from the company that the shorts may have been right came

a month ago, when CHS reported that fourth-quarter earnings would be below analysts' expectations because of "discrepancies" in the amount of rebates it believed it was owed by suppliers. At the time, CHS tried to allay investor fears by saying that once an analysis of the discrepancies was complete, "earnings for 1998 may be higher than reported today."

Osorio reiterated that in a conference call March 12, and in a subsequent

Dow Jones

story, when he said he was confident the quarter would come in at 66 cents a share. (The actual number was 23 cents.) "Things are progressing smoothly and swiftly," he said. "We felt confident with earnings estimates available to the Street before our earnings announcement."

He also had said the year was off to a good start; in a conference call this morning, in which he expressed deep embarrassment, he said February was weak. Osorio has a history of bragging about CHS' strong performance while the industry's stalwarts, including

Ingram Micro

(IM)

, were complaining of a sharp slowdown. Back in November, he asked analysts, "How many times have we revised our numbers since the IPO?" His answer: "None of the changes have been to decrease our numbers."

Now the company is talking about layoffs and closing dozens of warehouses that some analysts hadn't even known existed. The stock, which was as high as 19 3/4 earlier this year, slipped 2 in recent active trading to 4. And the outlook is so bleak that some short-sellers still haven't covered all their positions. "I would say they are a highly leveraged company with a pretty bleak outlook, and the history of highly leveraged distributors is not good," says Jeff Matthews of

Ram Partners

, a longtime CHS short. He points to such companies as

Merisel

(MSEL)

as an example.

Oh, and one other point: Shortly after this column's first item on CHS, last May,

Montgomery Securities

analyst Kurt King, on a CHS conference call, said to Osorio: "It's pretty clear to those of us who know the story that Herb just doesn't have the facts straight." Osorio responded, "We give very little credibility to a Web site owned by a hedge fund operator."

Again, Osorio didn't have his facts straight. And this memo to King: Neither did you!

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at herb@thestreet.com. Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.