Krispy Kreme is finding out.

The doughnut-maker, based in Winston-Salem, N.C., was one of the hottest initial public stock offerings of 2000.

Today, the storied company's stock sells for less than $10, down nearly 80 percent from its August 2003 high. The chain disclosed recently in a press release that the Securities and Exchange Commission is probing its accounting.

Krispy Kreme, a sugar coater? Who would have guessed?

In mid-2000, many investors were getting wise to Internet hype, but some fell headlong into a doughnut hole. Krispy Kreme stock ran up 75 percent in its first day of trading. From there, a squad of cheerleading analysts led the charge:

-- "It is without question the most intriguing growth story out there," said analyst John Glass in 2001. "People have loved to be critics, but they've all been wrong." Glass was then working for Deutsche Banc Alex. Brown, which underwrote Krispy Kreme's IPO.

-- "To suggest Krispy Kreme is a fad is to suggest that doughnuts overall are a fad," said John Ivankoe of J.P. Morgan in 2001.

Sounds like someone took a flying leap at a rolling doughnut.

Wall Street analysts weren't alone in their puffery. Wherever Krispy Kreme opened stores, it bombarded newsrooms with free doughnuts (free angioplasty not included). Media fables then followed about how this doughnut-maker, founded in 1937, had somehow taken over the world with mouthwatering confections that made consumers magically forget their worries about fat and sugar.

Customers lined up outside new Krispy Kreme stores for up to two hours. The first Krispy Kreme opened in Colorado in 2001 in Lone Tree. The store boasted first-week sales of $369,000, then a record for the chain.

Some expected Krispy Kreme to swiftly rival Dunkin' Donuts, which has more than 6,000 stores in 30 countries. But despite its hype and rampant growth, Krispy Kreme remains a crumb beside Dunkin'.

Krispy Kreme grew from 144 stores just before its IPO to 387 today. The company owns 154 of those stores, the rest are franchised.

Now, the SEC is investigating whether Krispy Kreme inflated its earnings in the way it accounts for its repurchases of franchise stores. In some cases, these franchise stores were allegedly acquired for too much -- including a transaction where the CEO's ex- wife was one of the sellers, unbeknownst to shareholders. In other cases, the stores may have been acquired for too little.

One accounting expert said Krispy Kreme's accounting, in general, was aggressive in showing positive results.

"The way they structured their deals was to show the greatest amount of growth in the shortest period of time," Donn Vickrey of Camelback Research Alliance, an independent research firm in Scottsdale, Ariz., told me.

Generally, Krispy Kreme front-loaded its books, said Vickrey, which is not illegal, but it makes a downturn a lot more painful when it comes. Earlier this year, Krispy Kreme blamed business declines on low-carb diets.

The stock drop has provoked some shareholders to file class- action lawsuits. The charges are reminiscent of Boston Chicken -- a chain that crowed its way from hot IPO to bankruptcy court in the 1990s.

Krispy Kreme hasn't commented on the SEC investigation beyond its press release. Krispy Kreme spokeswoman Amy Hughes did not return my phone call.

In May, Krispy Kreme CEO Scott Livengood defended one of the franchise transactions in question as "in accordance with generally accepted accounting principles."

We've heard that same rhetoric from other public companies. Qwest officials, for example, used it frequently before restating $2.5 billion in revenues.

Time will tell. But from now on I'm buying my doughnuts from the new shop that just opened across the street from The Denver Post. It's called Glazed & Confuzed.

Hey, at least they are upfront about it.

-- Al Lewis is a columnist for The Denver Post