Firm Markets Cosmetics of Unlicensed Physician : Retailing: Knickerbocker says it won’t deal with the product after it sells remaining inventory.

L. L. Knickerbocker Co., a television marketer whose soaring stock has drawn the attention of regulators, has sold millions of dollars’ worth of collectible dolls, jewelry and other items promoted by celebrities such as Marie Osmond and Farrah Fawcett.

But the company has one product spokesman whom it would rather not publicize.

Since the late 1980s, Knickerbocker has been marketing a line of cosmetics made by Michael Elam, a Corona del Mar doctor whose medical license was revoked by the state in 1990 because of charges of malpractice and fraud.

In Knickerbocker’s prospectus, which the company filed in January before its stock sale, Knickerbocker said Elam is a spokesman for the La Vie line of cosmetics sold by the company. The prospectus warned that “the exposure to the public of the circumstances surrounding the revocation of Michael Elam’s license” could adversely affect Knickerbocker.

Moreover, the prospectus noted that, among its risks, Knickerbocker’s product liability insurance excludes coverage of claims made by or against Elam.

The 47-year-old Elam, who gained national exposure as actress Phyllis Diller’s cosmetic surgeon, lost his license after allegations that he botched a surgical procedure and filed bogus insurance claims. The state medical board found that Elam was both “dishonest” and a “dangerous person to be licensed as a physician and a surgeon.”

Messages left at Elam’s home Tuesday were not returned.

Louis L. Knickerbocker, chairman and president of the company, said Tuesday that despite the wording in the prospectus, Elam has not been a spokesman for La Vie since 1991, though Elam’s name appears on the products.

Federal securities laws require full and truthful disclosure by companies in a prospectus. Knickerbocker, 52, explained that the prospectus was written to provide investors the “worst-case scenario” about the company as well as to leave open the possibility that Elam could someday be asked to be a spokesman for La Vie, if he regained his medical license.

Knickerbocker said Elam’s cosmetics constitute a small part of Knickerbocker’s sales, which totaled $4.35 million for the first six months of this year. Knickerbocker said his company currently has about $30,000 worth of La Vie Cosmetics inventory.

“Once we sell the existing inventory, we won’t do it,” Knickerbocker said. “Our plan is to discontinue the brand. It’s not worth it.”

Louis Knickerbocker and his wife, Tamara, own 63.5% of Knickerbocker. The company, which went public Jan. 26, has seen its stock surge from about $4 in mid-June to a high of $48.25 late last week.

After Knickerbocker’s stock plummeted 20% on Monday, its shares rebounded 15% on Tuesday to close at $43 in Nasdaq trading.

The stock increase has triggered inquires from the Securities and Exchange Commission and the National Assn. of Securities Dealers. Neither agency would say whether it has begun an investigation of Knickerbocker.

According to the prospectus, Elam and Knickerbocker go back at least to 1987. That year Louis and Tamara Knickerbocker co-founded La Vie Cosmetics with Elam, and two years later, Elam, the Knickerbockers and Farrah Fawcett founded another company, MLF Enterprises.

Representatives of Fawcett, who is a director of Knickerbocker, could not be reached Tuesday.

The prospectus said that in 1993, Knickerbocker received rights of the La Vie Cosmetics trademark from Elam, who developed the product line. Elam “is under contract with the company to provide services relating to the marketing of the product line [including services as a spokesperson for the products] and the company pays him a royalty based on sales of products in the La Vie line,” the prospectus said.

The line consists of moisturizing cream, a facial rejuvenation system, a shampoo and conditioner and a self-tanning system; they sell for $29 to $49.

In the first 10 months of 1994, Knickerbocker reported revenue of $232,000 for all of its cosmetics, though it did not break down La Vie sales.

Knickerbocker’s prospectus also said that Knickerbocker “has recently completed development of the new La Vie II cosmetic line. . . . The company is currently in the test-marketing phase of this product’s development.”

Louis Knickerbocker dismissed the La Vie II line, saying: “We don’t need the business. It’s just because we have about $30,000 inventory in stock. Once out of it, we won’t do it.”