The equal call and put holding is a very basic option trading strategy and the comments that go along with it are completely off base – this is just a matter of fact. It’s not a synthetic short.

Likewise, you do not acquire shares for covering a short position, again this is just a matter of fact.

Now the problem is that the author is extremely discredited when he makes comments like the ones above, which even an amateur options trader would know are incorrect.

I would hate to see poison like this ruin an otherwise great piece of investigative work. The story still makes perfect sense, but those comments need to be removed less they invalidate the author’s authority on the subject.

http://www.boston.com/business/healthcare/articles/2009/08/12/amid_questions_about_approval_process_fda_device_chief_resigns/?rss_id=Boston+Globe+–+Today’s+paper+A+to+Z

Dodd has been approached many times regarding naked shorting, many times regarding hedge fund abuses, and many times regarding media supporting their abuses.

I think it was the “I hear Mark Mitchell beats up on his own mother” comments that did it for me.

I do _not_ question your intentions. I believe you have good intentions. What I question is your article. Both the approach and it’s end effects. This kind of writing gets you a following of the conspiracy freaks and those that are already 100% convinced that every stock move against their position is a sure sign of manipulation.

But at the same time you distract from the need for a major overhaul of the stock market workings. You get people bogged in the details of who slept with whom. This is interesting gossipy stuff and I grant you, that _if_ crimes were committed it could aid in collecting the evidence. But without any evidence of actual crimes it only helps to dilute the efforts for real changes.

The current half-hearted attempts to control naked short selling are a good example. They try to address only the semi-illegal naked shorting and still inadequately. Instead, the entire shorting problem should be addressed.

How come nobody insists on a major, common sense (OK, “my” common sense) rule: “No shorting is allowed if the total number of shorted shares exceeds 10% of all shares. (The “10%” is just an example of what the allowed maximum should be). This would take care of the major damage shorting makes to fledging companies in a need to refinance.
No _any_ shorting, naked, pajamas clad, borrowed shares, etc… until the total of shorted shares drops below the allowed max.

Similarly the entire discussion on the uptick or other rules limiting shorting seems to ignore the arguments which are given for shorting in the first place. One of the main arguments for shorting is that it helps “price discovery”. But obviously, on days when a stock is diving down, not much “discovery” by shorting is needed. It seems that it was already discovered to be overpriced… There are really no good arguments for shorting when PPS has dropped more than say 2% in the day, or more than 5% in past week for example.

- – -

Of course an even simpler step would be to get rid of all stock shorting. The arguments for it are mostly bogus anyway. Options offer opportunity to bet on downward stock movement anyway! Allowing shorting in combination with options offers plenty of opportunity for the stock manipulation.

- – -

Mark Mitchell > Every Wall Street veteran I have spoken to says that the SEC filings appear to suggest that Balyasny and Visium [...] were, as of March 2007, implementing a split-strike strategy. A split-strike is, as you know, a synthetic short position.

You wrote: “held around 3 million put options in Dendreon. Simultaneously, these hedge funds owned an almost equal number of call options”

Uhhhh. It seems, you simply made a small mistake here. You meant “…Simultaneously, these hedge funds were __short__ an almost equal number of call options”.
You kind of indicated it in the following statement but it slipped by me. Sorry.

- – -

Mark Mitchell > Balyasny was, one way or another, net short Dendreon as of March 31, 2007 – two days after the advisory panel voted in Dendreon’s favor.

Mark Mitchell > From SEC filings, we can identify only ten hedge funds (out of a universe of 11,500 hedge funds) that seemed to have placed large bets against Dendreon as of March 31, 2007. These bets were utterly counterintuitive given the fantastic news of the advisory panel vote.

You keep repeating this “ten out of 11,500). How many funds would you expect to invest (long or short) in one small biotech? What’s the average? Tell us why “only ten” should be surprising.

It would be much more interesting to know who was short big way _before_ the Panel, _before_ March 30, 2007
Going short after the Panel was _not_ “utterly counterintuitive”. PPS shot up on the Panel news and on the short squeeze. And Provenge was still not approved, and in view of many not a slam dunk. Even though I was long DnDn and quite sure it’ll be approved, I bought some puts a couple of times (for a day and a swing trade) in that “overpriced” period. So it was not “counterintuitive” to me. It was not “counterintuitive” to the Dendreon’s CEO who sold a lot of his shares at $15. And not to many other longs who sold their shares at the post-Panel days of high PPS.

The risk a huge loss was much greater to those who shorted before the panel, in the $4-5 range. Were those the same funds?

I know it’s hard to get the data on shorts out of SEC. But when you have no access to supportive data, don’t throw in any data just to have something. Again, it will convince only those already believing that the world is run by “cartel” “cabal”, etc…

- – -

Mark Mitchell > I have very close friends who have worked for Milken.

Now, this explains a lot. The cat is out of a bag…
Are trying now to implicate yourself and your close friends?
(For those dense among your readers, this was meant as a joke.)

- – -
- – -

You may want to decide if you want DeepCapture to remain a place where groupies can get their daily fix of conspiracy confirmations. Or if you want to propose and affect real changes. Like to make stock market more fair to all traders, and less of a playfield for unscrupulous.

If you want to affect a change you have to convince other people than followers.

The real problem with today’s stock market trading and rules, is not so much illegal trading and conspiracies, but legal or borderline legal opportunities for a few large players to take advantage of the rest. Also, in a well designed electronic market SEC would not need expensive audits to detect that Madoff’s claimed gains didn’t match his nonexistent trades….

- – -
- – -
- – -

Mark Mitchell > if I discover that you are not employed by the miscreants, I will post a comment asking people to stop suggesting that you are.

No need to. I’m not really hurt by those, that accuse me of being: lawyer, paid basher, hedge fund employee, hedge fund manager, Adam Feuerstein, Cramer, Milken, Milken’s lawyer,… just to name a few of my discovered “identities”.

I’m not employed by anybody, but what if I’m just a natural miscreant. Had to double check in a dictionary:
” An infidel; a heretic.” Well, I’m sorry I have to plead guilty under this definition.
“An evildoer; a villain”. To the faithful anybody different is evil… I’m not quite sure how your knowing my last name will change it?

I’m not a big fun of the anonymous aliases on bulletin boards but switched to one some years ago when number of unbalanced and hateful posters grew on the net. Kind of like one of your followers here ( Don: “YOU MURDERING BASTARD” ; “You are on my shit list..I pray I can speak with you in person” ; )

Anyway, I’ll probably contact you by email. I don’t really care much what the faithful but thoughtless think on who I am. But since you do use your full name, I kind of owe it to you too.

= = = = = = = = = =
= = = = = = = = = =

For a good summary of Provenge saga see these post on DnDn board:
http://tinyurl.com/ocyan-281878
http://tinyurl.com/ocyan-283030

I’ve seen enough to convince me that several individuals cooperated and coordinated their efforts to prevent approval of Provenge in 2007. They had official role in FDA proceedings despite having clear conflicts of interest, some disclosed to FDA and some undisclosed.

But the use of word “conspiracy” could be overused. “Conspiracy” implies an agreement with an illegal intent or committing a crime. In a bad system like FDA a lot of bad stuff can be done without even being illegal. The emotional arguments that delaying Provenge approval is a crime because it caused some people do die several month sooner are unlikely to hold in a court. Many wrong, unethical and immoral actions are very legal. Perhaps withholding COI from FDA could turn out illegal?

(disclosure: I’m not a lawyer, despite being “accused of it here, among many other things : – )

= = = =

= =
ref: http://www.theoptionsguide.com/synthetic-short-stock-split-strikes.aspx , http://www.theoptionsguide.com/synthetic-short-stock.aspx

http://norris.blogs.nytimes.com/2009/07/28/short-talk/

Because you seem to be among the only people who questions my intentions, and because you are among the most avid posters on Deep Capture, I will respond to your latest comments.

Every Wall Street veteran I have spoken to says that the SEC filings appear to suggest that Balyasny and Visium (which is Balysasny’s fund, though he does not declare that in most of his SEC filings) were, as of March 2007, implementing a split-strike strategy. A split-strike is, as you know, a synthetic short position. Of course, as I have stated repeatedly in the story, it is impossible to know with absolute certainty. But we can make educated guess that have a high probability of being accurate. From other information I have, I am quite confident in saying that Balyasny was, one way or another, net short Dendreon as of March 31, 2007 – two days after the advisory panel voted in Dendreon’s favor.

From SEC filings, we can identify only ten hedge funds (out of a universe of 11,500 hedge funds) that seemed to have placed large bets against Dendreon as of March 31, 2007. These bets were utterly counterintuitive given the fantastic news of the advisory panel vote. And these bets were immensely prescient given the fact that Dendreon was subsequently derailed by people tied to Milken. Therefore, it is significant that at least seven of those ten hedge funds (including Balyasny’s) can be shown to be part of a tight network that is tied in innumerable ways to Michael Milken or his closest associates. Hedge funds in this network routinely target the same stocks at precisely the same times. Many of them employ, in key positions, former top traders of SAC Capital, run by Steve Cohen, who was investigated for trading on inside information provided to him by Milken’s shop, and is well known for building a nationwide trading network by maintaining relationships with his former employees. The companies targeted by these hedge funds are routinely victimized by illegal naked short selling. Many of the hedge funds in this network have been implicated in multiple cases of abusive short selling. And many of them (including a hedge fund for which Balyasny was the top earner) have ties to a network of Mafia-affiliated brokerages that was targeted by the FBI in the 1990s.

My story seeks to describe this network and the ties that bind certain Wall Street miscreants. You suggest that all I have done is tell readers who so-and-so’s father in law is. I maintain that it is highly relevant that a hedge fund manager in the network is the son-in-law of the man who founded the most notorious, Mafia-affiliated brokerage on Wall Street (a brokerage that was indicted on 173-counts and famous for pumping and dumping fake biotech companies); that this son-in-law helped run that Mafia-affiliated brokerage; that the president of that Mafia affiliated brokerage was Michael Milken’s former national sales manager; that this son-in-law is a close business associate of Michael Milken; that this son-in-law was the controlling shareholder of a biotech company promoted by Michael Milken’s “philanthropy;” and that a trader working for this son-in-law was simultaneously hammering Dendreon. You call that a “conspiracy theory.” I call it a collection of interesting facts. Readers can make of them what they want.

However, I have attempted to do more than describe various ties to Milken. I have very close friends who have worked for Milken. Some of these people are the most honest people I have ever known. One of them has been a mentor to me. I certainly do not mean to suggest that any person is guilty only by reason of their association with Milken. However, I do think some of Milken’s closest associates are bad actors – people with documented records of market miscreancy. I believe it is worth noting that those bad actors seem to collaborate. And I think it is worth noting the extraordinary coincidence of seven hedge funds with ties to Milken and the bad actors being among the only hedge funds on the planet placing big bets against Dendreon just before Dendreon was derailed by Milken’s philanthropy and by government employees with financial ties to Milken. I think it is also worth noting the extraordinary coincidence that many of those same hedge funds (including Balyasny’s) were meanwhile heavily invested (no fancy options strategies here – just straight share purchases) in dubious, competing companies that were promoted by Milken’s philanthropy right before those companies announced (not quite honestly) that they had sealed massive deals – deals that were dependent on Dendreon’s derailment; deals that were subsequently cancelled when it was learned that the companies’ prostate cancer treatments were actually killing people.

Honestly, Akcje, I welcome your comments on this story. The more debate there is, the closer we can get to the truth. I encourage you to continue posting, but I’ll tell you that it seems a bit disingenuous when you zero in on facts of little importance, ignore the big picture, and make blanket statements that “Mitchell just doesn’t understand markets and trading” without offering anything that might increase our understanding. These tactics of debate (obfuscation) come straight from the miscreants’ handbook, which perhaps explains why so many people here seem to believe that you are employed by the miscreants themselves.

However, if you are not tied to the bad guys, I would like to dispel that misconception by stating definitively that you are a straight-shooter who merely has a different point of view. Moreover, I would like to better understand your point of view, and perhaps help you to better understand mine. Therefore, I have a proposal. It is that you contact me by private email and let me know who you are, and how to reach you. You have my word, here in writing, that I will not reveal your identity to anyone – not my Deep Capture colleagues; not my family; not anyone. And you have my word, here in writing, that if I discover that you are not employed by the miscreants, I will post a comment asking people to stop suggesting that you are. It does not serve my purposes to have false accusations leveled on this site.

Assuming you are operating in good faith – that you are merely a fellow who has taken an avid interest in this story – this is your chance to prove it. And if you prove it, your arguments (about which you are apparently passionate, judging by the thousands of words you have posted here) will be taken more seriously.

Just an offer – I try to be helpful. Of course, if you don’t contact me, your detractors will be left to their assumptions.

My email: mmitchell@deepcapture.com

Another word of thanks to the many people who have done so much to get the word out. I am overwhelmed by the reaction to this story and wish I could do more than write this measly note to express my gratitude to those who have been sending letters and keeping the discussion going on the message boards.

I think we’re showing that we don’t have to be The Wall Street Journal or CNBC to rock the boat. In fact, it’s better that we’re NOT the Wall Street Journal or CNBC – I think they have rules against rocking the boat.

Revolutions have sprung from humbler origins. Keep it up!

Mark Mitchell

Yes, you are right, Dr. Small was supposed to participate in the advisory panel meeting, but he was not supposed to vote. I regret the error, and have changed the paragraph to make it accurate. Thanks very much for spotting the error. If anyone else spots other errors (inevitably there will be some in a story of this length, and we are a small staff, not blessed with teams of fact checkers), please do let me know.

If you prefer to contact me privately, my email is mmitchell@deepcapture.com

Technically the SEC’s comment re: the legality of naked short selling isn’t inaccurate but it is 100% misrepresentative. It is 100% legal for a truly “bona fide” MM to sell nonexistent shares into a buy order in order to “inject liquidity” when there are order imbalances of buy orders dwarfing sell orders. This is the universally abused “bona fide MM exemption”. The thing is that a truly bona fide MM will then cover any pre-established naked short position ON THE VERY NEXT DOWNTICK as sell orders dwarf buy orders. This is when the crooked MMs that ILLEGALLY accessed the bona fide MM exemption are nowhere to be found. Why? Because at the NSCC you can naked short sell all day long and all they ask you to do is to collateralize the monetary value of your naked short position on a daily marked to market basis. This is referred to as “collateralization versus payment” or “CVP”. It is100% illegal in that the “prompt settlement” of securities transactions as mandated by Section 17 A of the ’34 Act necessitates “delivery versus payment” or “DVP” so do almost all other clearance an settlement systems on the planet EXCEPT OURS. Both BIS and IOSCO in their November of 2004 recommendations to “central counterparties” warned us about straying from DVP.

With CVP there is a readily accessible self-fulfilling prophecy accessible to the crooks. As the readily sellable share price depressing “security entitlements” that are induced to be issued by each and every FTD and NSCC SBP “borrow” accumulate invisibly the share price tanks as do the “collateralization requirements”. This results in the money of the investor flowing to the parties that sell nonexistent shares and refuse to ever deliver that which they sell. In a CVP system the only solution is to execute “buy-ins” when the seller of shares absolutely refuses to deliver that which it sold but the NSCC management that are the employees of the crooks doing the naked short selling have accumulated 15 of the 16 sources of empowerment to execute buy-ins and they have the audacity to plead to be “powerless” to execute buy-ins when their bosses misbehave.

The lack of leadership coming from the SEC on the total ban of naked short selling by requiring a “hard-locate” and preborrow requirement is business as usual for the fat cats on Wall Street and around the world. The likes of Milken and Cohen and their ilk are open for business to do what they do best, push the envelope to continue the business of their bear raids.

Why the SEC is holding a roundtable to discuss naked short selling in the next 60 days is almost unfathomable, but then it is the SEC and you can ask any Madoff client about how effective they are in acting on all of the information at hand to combat the fraud and crime in naked short selling.

I sure hope the boys from DeepCapture.com are invited to sit with Ms. Shapiro of the SEC at the roundtable. She may learn a thing or two if she really cares.