Collectible Doll Stock Dives 20% : Market: Some investors welcome correction for O.C.-based Knickerbocker’s shares, which rose tenfold in six weeks.

RANCHO SANTA MARGARITA —  The soaring stock price of collectible doll and toy maker L.L. Knickerbocker nose-dived 20% 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 past six weeks, but the price fell $9.25 a share Monday to close at $37.50 a share on the Nasdaq market system.

Traders, brokers and investors attributed the sharp drop to shareholders who purchased stock at a much lower price and wanted 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.”

Yu said his firm, which bought 147,450 shares, are long-term investors in Knickerbocker, not traders ready to sell quickly. “We feel that the fundamentals are intact and that the company has great potential,” he said.

No executives at Knickerbocker, which markets its wares over the QVC television shopping station 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,” said Khan, who works at Shamrock Partners in La Canada.

Some believe that huge price gains in companies like Knickerbocker and Netscape Communications Corp., whose stock rocketed to nearly $75 a share last week on the first day it offered stock publicly, demonstrate that small companies are attracting the attention of Wall Street.

But others, like 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 the stock.

Khan has been involved in a number of well-publicized scrapes, including the 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 it and would ask 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 like Yu and others. He also believed that short-sellers complained to regulators in a “desperate attempt” to halt the rise in the company’s stock price.