Stock Rise Prompts Inquiries : Trading: Price of O.C.’s L.L. Knickerbocker has gone up nearly 1,000% since January. SEC and Nasdaq wonder why.
The meteoric rise in the stock price of L.L. Knickerbocker Co., a maker and marketer of collectible dolls and other products sold on home shopping television stations, has triggered inquiries from federal regulators and stock exchange officials about the stock’s 10-fold increase since the end of June.
The company, which went public Jan. 26, has seen its stock soar from $5 a share six weeks ago to a high of $52 a share during Nasdaq trading Friday before it fell back to close at $46.75 a share.
Directors, eager to keep investors trading shares, authorized a 5-for-1 stock split Friday. The split, to take effect Aug. 30, will increase the number of shares outstanding to 12.3 million and reduce the price by 80% to make it more affordable to small investors.
Meanwhile, both the Securities and Exchange Commission and the market surveillance division of the National Assn. of Securities Dealers, which runs the computerized Nasdaq market system, called the company this week to find out what executives were telling investors, said Louis L. Knickerbocker, the company’s president.
“The SEC just asked for us to send them our projections for sales and earnings,” Knickerbocker said. “The Nasdaq group just asked us if we knew why [the price jumped], and we said that our only assumption was because [investor] Rafi Khan was recommending our stock.”
Neither agency has launched an investigation, he stressed.
Khan, best known in Orange County for his failed bid early last year to oust the board and management of ICN Pharmaceuticals Inc., said neither organization had contacted him.
Both Khan and Knickerbocker believe that certain investors had taken short positions, a strategy that pays off for them only if the stock falls. With such a large leap in the stock price, the short-sellers face hefty losses.
“I am not a stock-market-savvy person,” Knickerbocker said. “My expertise is in manufacturing and selling products over television.” The run-up in stock price, he said, is a “tremendous vote of confidence in the company,” which has “tremendous potential” to become a $1-billion company.
But the company has a ways to go to reach that plateau. Its revenue last year was $7.8 million, a 50% increase over $5.2 million in sales the previous year.
Knickerbocker is banking on celebrities to sell its products, which also include toys, jewelry, clothing and environmental systems.
Entertainer Marie Osmond, for instance, sold out a limited line of her collector dolls in only 13 minutes of air time on the QVC home shopping station, providing the network gross sales of $2 million, he said. Other celebrities, including Angie Dickinson and Farrah Fawcett, also will be pitching products on QVC.
Fawcett, a Knickerbocker director, bought 5,000 shares of the company’s stock in February at $4.75 a share. Her $23,750 investment now is worth $233,750.
Knickerbocker stock began its climb as soon as investor Khan started promoting it.
Khan said he discovered the Knickerbocker stock in late June and was impressed with the company’s growth rate. The next day, he visited with Louis Knickerbocker for four hours, discussing the company and reviewing its plans for six new products.
“Here’s a company with no institutional ownership. No one loved it. No one followed it,” Khan said. “I started buying the stock at $5.50.”
By July 3, the stock began to move as Khan introduced Knickerbocker to money managers. The investors began taking big stakes in the company. Daily trading, which had stagnated at about 20,000 shares or less, jumped that first trading day in July to 113,000 shares. Only once since has the number of shares changing hands been less than 100,000 a day. Friday, volume rose to 506,000 shares.
While he’s thrilled with the huge amount of interest in his company, Knickerbocker said he isn’t surprised by the hike in the stock price mainly because he’s “never been here before.”
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Times correspondent Geoff Boucher contributed to this article.
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Profit Makers
L.L. Knickerbocker Co. develops, manufactures and sells a variety of products including collectibles, jewelry and environmental systems through home shopping networks and retail outlets. An overview of the company:
* Headquarters: Rancho Santa Margarita
* President: Louis L. Knickerbocker
* Number of employees: 22
* Shares outstanding: 2.46 million, before a pending 5-for-1 stock split
* Market value: $115 million
* Six-month net income: $362,916
* Six-month revenue: $4.35 million
Soaring Stock
Knickerbocker stock has jumped from about $5 per share in June to more than $46 per share in August--nearly a 1000% increase. Friday closing prices:
Aug. 11: $46.75
Source: Bloomberg; Researched by APRIL JACKSON / Los Angeles Times
