Travelzoo ( TZOO), the hottest stock of last year , said Monday that the Securities and Exchange Commission is looking into stock transactions by its employees. News of the inquiry came as the online travel publishing company also announced fourth-quarter earnings that were weighed down by unexpected costs associated with a 6-year-old stock-giveaway promotion. It also comes just days before a deadline for obtaining regulatory approval to permit a group of hedge funds to resell 750,000 shares they purchased last fall in a private placement. If the private placement shares are not registered for sale by the end of this week, Travelzoo must pay $300,000 a month in damages to the hedge funds until the shares are registered. The company raised $30 million in the so-called private investment in public equity transaction last September, selling its shares at $40 each. In late afternoon trading, Travelzoo was down $15.64, or 21.3%, to $57.74. Travelzoo, which saw its shares rise 11-fold last year, noted that the inquiry by the SEC "follows a period of extreme volatility in the company's stock price." The company said it has "provided information concerning any transactions in the company's shares by its officers, directors and employees, including Ralph Bartel, the company's CEO." In a conference call with investors, Bartel, who also is the company's founder, chairman, president and chief financial officer, said: "I don't think the SEC inquiry is a big surprise." He suggested the SEC had no choice but to look into the trading after receiving complaints from short-sellers. Meanwhile, Travelzoo also delivered disappointment on the earnings front. While fourth-quarter profits rose 281% from a year ago to $1.7 million, or 9 cents a share, the number fell short of the Thomson Financial consensus estimate of 13 cents a share. In the year-ago period, the company earned $453,000, or 2 cents a share. A good chunk of the company's earnings miss stems from a plan to compensate holders of some 5 million free shares given out in a 1998 site promotion. The company said it had to shell out $977,000 to those former stockholders in the quarter. Earlier this year, Travelzoo's board declared 4.1 million of those free shares invalid because the stockholders had not exchanged them for new shares after a corporate reorganization. But in October, the board backpedaled, offering cash to former stockholders who could prove they had received free shares and weren't aware of the exchange.