Knickerbocker Shares Cool, Take 20% Dive
The soaring stock price of collectible doll and toy maker L.L. Knickerbocker nose-dived 20% on Monday in what some investors welcomed as a cooling-off for the overheated shares.
The frenzied trading in Knickerbocker stock had driven the price up tenfold in the last six weeks, but the price fell $9.25 a share Monday to close at $37.50 on the Nasdaq market.
Traders, brokers and investors attributed the sharp drop to shareholders who purchased the stock at a much lower price and moved to take their profits now.
“I think basically the stock ran up too fast,” said investor Norman L. Yu, who runs an investment firm in Newport Beach. “We didn’t expect it to go up that fast, so naturally we expected a correction.”
No executives at Knickerbocker, which markets its wares over the QVC television shopping network and in direct-mail advertising, were available for comment Monday.
Controversial broker Rafi M. Khan, who picked Knickerbocker in late June as an undervalued stock at $5 a share, said he spent the day buying Knickerbocker stock. “It seems some people were trying to drive the price down,” he said.
Some believe that huge price gains in companies such as Knickerbocker and Netscape Communications Corp., whose stock rocketed to nearly $75 a share last week on the first day it was offered publicly, demonstrate that small companies are attracting the attention of Wall Street.
But others, including Irvine investment banker Larry H. Friend, believe such trading indicates that the bull market is coming to an end.
“We’re in the final stages of a great bull market and the trading is fast, furious and crazy,” Friend said. “There is no way these stocks should be selling where they’re selling. Yet the market overdoes everything. Knickerbocker is one of many stocks that got way overvalued and way ahead of itself.”
One investor, who would not divulge his name, was concerned that Knickerbocker stock, which languished from the first day it was offered to the public in January, started moving only when Khan began promoting it.
Khan has been involved in a number of well-publicized scrapes, including a 1993 attempt to oust the board and management at ICN Pharmaceuticals Inc. The Costa Mesa drug maker blocked the effort in early 1994 and sued Khan for $25 million. The suit is pending.
Khan is angered by attacks on his integrity. “I’m a very current broker with absolutely a 100% clean record, without a blemish, without one single customer complaint in eight years, without one single charge against me,” he said.
He has been described as taking delight in skewering “short sellers,” traders who profit only when a stock falls in price. He has said that Knickerbocker’s stock has a number of short sellers betting against the company.
Last week, after the company revealed that regulators were asking about it and would question Khan about the big price rise, Khan said he hadn’t received any calls. But, in a reference to short sellers, he said: “The only calls I got were half a dozen anonymous calls from people threatening to break my legs. They didn’t leave names.”
Louis L. Knickerbocker, the company’s president, has credited Khan with bringing in investors such as Yu and others. He also believes that short sellers complained to regulators in a “desperate attempt” to halt the rise in the company’s stock price.
