Troubles Mount for L.L. Knickerbocker

Shares of L.L. Knickerbocker, whose stock once traded above $15, have sunk to new lows as some large debt holders moved this month to dump shares and short-selling activity surged to a four-year high. The Lake Forest company’s shares closed Monday at about 22 cents, up 2 cents. The stock has lost 65% since May, hitting a 52-week low of 19 cents on Friday on Nasdaq. Following heavy losses in 1998, Knickerbocker, which sells dolls, toys and other collectibles, warned investors recently that problems with its lenders threaten to put it out of business. In recent regulatory filings, the company has said its financial problems raise “substantial doubt about the company’s ability to continue as a going concern.” Company spokeswoman Fran Daniels said Knickerbocker is negotiating with lenders and remains optimistic about resolving its problems.

But for individual investors still holding the stock, there was more bad news. First, the average daily volume of short-selling--the sale of borrowed stock, an indication that traders are betting the price will fall--jumped to more than 1 million shares in June, triple the pace of the previous three months. The company said it was aware of the surge but could not explain it. The activity marks the highest level of short-selling since 1995, when the stock jumped in response to a tug of war between Wall Street short-sellers and flamboyant stock promoter Rafi Khan. Securities regulators eventually sued Khan for alleged stock manipulation. Also hurting Knickerbocker’s stock was the announcement by several big investors that hold company-issued notes that they plan to convert their holdings into stock and sell the shares, Daniels said.