Something seemed odd in the trading of shares of Verity ( VRTY) before the software firm warned yesterday of a loss, instead of an anticipated profit, for its August quarter.

Namely, it was the timing. While the broader market didn't get word of Verity's warning until the company issued a press release at 9 a.m. EDT Thursday, plenty of folks were selling the stock the day before. It's the second consecutive quarter that there was considerable trading activity in Verity in the days before a formal company announcement.

The warning, in which the company said it would post a loss of up to 12 cents per share instead of the 13 cent profit analysts were expecting, caused Verity's stock to plummet $3.08, or 24.3%, to $9.62 Thursday as investors tripped over themselves to get out of the name.

But on Wednesday, the day before the warning came out, the stock closed 10.7% lower on 3 1/2 times its average volume, and traded down as much as 19% during the session even though there was no official news from the company. This on a day when the S&P Software Index was down a mere 3.1%, according to Baseline.

Which raises the question: Who knew about Verity's warning, and when?

Greg Vogel, the software analyst at Banc of America Securities who covers the stock, says there was plenty of chatter in the markets about Verity before the company issued its warning.

"There were rumors being pretty widely spread going into the prerelease announcement yesterday, but I hadn't heard anything directly from the company," says Vogel, who rates Verity a buy because of the $6.32 per share that the company has in cash. "It's always hard to speculate, except to say that people got out. Whether they knew something or not is hard to determine. Let me just say I wish I knew." (His firm co-managed an offering for Verity in 1999.)

On Wednesday, the day before Verity's warning, the stock traded 1.37 million shares on no news. The stock's average daily volume during the previous 30 trading sessions was around 385,000 shares. There were no major brokerage research notes published prior to the warning, according to Multex.com.

"I think you've got the story right there," says Tim Heekin, director of equity trading at Thomas Weisel Partners, which makes a market in Verity shares. He said that sentiment about the entire software sector was negative leading up to Verity's warning, and that traders were waiting for bad news from the company. "The volume picked up, and I think it was in anticipation of the whole thing. People were anticipating not great guidance, or lowered numbers going forward."

Anticipating things accurately, of course, is the way to make money on Wall Street. But exactly how some investors were able to so adroitly anticipate Verity's warning raises the question of whether there was selective disclosure about possible trouble at the company. The Securities and Exchange Commission's Regulation Fair Disclosure prohibits companies from selectively releasing material information -- such as its quarterly profit or loss projections -- without also informing the investing public at large.

Verity representatives, including Chief Financial Officer Todd K. Yamami, did not immediately return messages requesting comment for this story.

"When a company is having a difficult time, salespeople tend to talk about how difficult a time they're having," says Vogel. "Rumors start circulating and it creates turmoil in the stock."

This isn't the first time, however, that Verity's shares have shown increased activity prior to an official announcement from the company.

After the close of markets on June 7, the company preannounced that its May-quarter revenue would be around $41 million, in line with its previous guidance to financial analysts. That good news came despite the dismal environment for technology spending, at a time when some investors had been worried Verity would miss its numbers. In the release about the announcement, Verity CEO Gary J. Sbona went so far as to explain why the company was preannouncing in-line results.

"Normally we would not preannounce preliminary results that are consistent with our guidance, but current marketplace conditions plus disappointing performances of several companies in our sector prompted us to take this action," Sbona said in the release.

But something prompted a lot of people to buy Verity shares before the June 7 announcement.

In fact, on June 6, volume in Verity shot up to 1.88 million shares, again on no official news from the company and in the absence of any major brokerage reports. That was nearly 2 1/2 times greater than the average daily volume of 772,000 during the previous 30 trading sessions.

Vogel says that during that quarter, investors had initially worried that Verity would report disappointing news. But buying of the stock picked up before its positive preannouncement. In fact, during the six trading sessions prior to Verity's news, the stock shot up 27%.

"When they made the preannouncement of in-line results last quarter, the stock went up," Vogel said. "It had the opposite effect."

Investors who bought Verity before it warned yesterday are probably wishing they'd done the opposite now.