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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 10 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 10 of 15)



What follows is PART 10 of a 15-PART series. The remaining installments will appear on Deep Capture in the coming days, after which point the story will be published in its entirety.

Click here to read PART 1

Click here to read PART 2

Click here to read PART 3

Click here to read PART 4

Click here to read PART 5

Click here to read PART 6

Click here to read PART 7

Click here to read PART 8

Click here to read Part 9

Where we left off, we had learned that on March 29, 2007, an FDA advisory panel had voted overwhelmingly that Dendreon’s promising treatment for prostate cancer should be approved. As a result, most financial analysts and investors were expecting that Dendreon would become a profitable company. However, ten hedge funds (out of a universe of 11,500 hedge funds) held large numbers of Dendreon put options (bets against the company), suggesting they had reason to believe that Dendreon would be derailed. At least seven of those hedge funds can be tied to Michael Milken or his close associates.

We had also learned that Michael Milken himself stood to profit if Dendreon were to experience any unexpected problems receiving FDA approval. This is because Milken was the early financier and principal deal maker for ProQuest Investments, a fund that (along with an affiliate) controlled a company called Novacea, which was one of Dendreon’s competitors in the race to produce a new treatment for prostate cancer. Meanwhile, a Milken crony, Lindsay Rosenwald (who once helped run D.H. Blair, a Mafia-linked brokerage which specialized in pumping and dumping fake biotech companies) controlled Cougar Biotechnology, which was Dendreon’s second competitor in the race to develop a treatment for prostate cancer. In addition, we had learned that Milken’s “philanthropic” outfit, the Prostate Cancer Foundation, had supported Novacea and Cougar, while turning its back on Dendreon.

Finally, we had learned that on April 13, 2007, The Cancer Letter, a newsletter with a record of publishing information leaked from the FDA in the service of select Wall Street hedge funds, published another FDA leak. This leak was a letter written to the FDA from a doctor named Howard Scher, who was a board member and executive of ProQuest Investments and the chairman of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation. In that letter (an unprecedented attempt to lobby the FDA after an advisory panel had already voted), Dr. Scher argued vehemently that Dendreon’s treatment should not be approved.

One of Dr. Scher’s principal arguments against Dendreon was that the FDA advisory panel had improperly “changed the question” regarding the efficacy of Dendreon’s treatment. As we saw in Chapter 9, that claim was false, and Dr. Scher’s other arguments were specious.

But Dendreon’s enemies continued to whisper in reporters’ ears about this issue of “the question,” and the unprecedented lobbying of the FDA continued.

Now we meet another conflicted doctor and the sixth of those seven hedge funds that bet big against Dendreon right before the lobbying began….

* * * * * * * *

On April 20, three weeks after the advisory panel vote, and one week after Dr. Scher’s missive appeared in The Cancer Letter, Forbes journalist Matthew Herper published a story arguing that there was a good chance the FDA would not approve Dendreon’s cancer treatment outright. “If the agency wants to ask Dendreon for more data, it certainly has some outs,” Herper wrote. “The FDA changed the wording of the question…”

Three days later, Dr. Maha Hussain, one of the panel doctors who had quickly voted “No” on the bogus question, wrote a letter to the FDA arguing that Dendreon’s treatment should not be approved. This letter, like Dr. Scher’s, was addressed to FDA commissioners and was presumably confidential. And this letter, like Dr. Sher’s, found its way to The Cancer Letter, which posted it for all to see just three days after it was written.

Dr. Hussain’s arguments were precisely the same as those employed by Dr. Scher and the whispering folks on Wall Street. “The recommendations for approval…are based on data that can only be characterized as best as ‘suggestive’ of possible benefit,” she wrote. “From the scientific and procedural aspects, in general, it would seem that at the end of the day what should determine a positive verdict in any therapeutic trial is the strength of the evidence as critically reviewed by an Advisory Committee…with clear guidance on the question posed to the committee within the framework of the regulatory guidelines and requirements of the FDA for approval.” [Italics mine]

That is, Dr. Hussain—like Dr. Scher, the singing Sendek, and whoever was feeding the journalist Matthew Herper–was suggesting that the FDA panel had voted on the “wrong question.”

Meanwhile, Jonathan Aschoff, the physician-impersonating financial analyst who’d set a target for Dendreon’s stock price to reach a mere $1.50, was telling journalists that the FDA panel would not have voted to approve Dendreon’s treatment if it weren’t for the “substantial” rewording of “the question.” On April 25, Aschoff issued another damaging report, this one asserting, once again, that the FDA would ignore its panel because the panel had voted on the “wrong  question.”

By this time Dendreon supporters were busily circulating transcripts showing that the FDA panelists had, in fact, voted on the legal question. The supporters had also discovered Dr. Scher’s ties to Novacea, Cougar Biotechnology, Proquest, and Michael Milken, and began explaining to all and sundry that ProQuest and Novacea would cash in if Dendreon were not approved. Moreover, the supporters had revealed that Dr. Hussain, the second letter writer, had also done work for the Milken-invested Novacea, and was a member of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation.

On April 26, Matthew Herper of Forbes published another article – this one repeating the arguments in Dr. Hussain’s letter. Herper, who had been told about Scher’s conflicts of interest, had apparently decided to investigate. This investigation seemed to have involved nothing more than asking Dr. Scher if he had any conflicts of interest. In his April 26 article, Herper  reported that Scher’s spokesman said “that Scher had nothing to do with his letter leaking [and appearing in The Cancer Letter], and that he knew of no family members who would benefit financially either way if Provenge were approved.”

To reinforce Scher’s credibility, and to make Dendreon’s supporters look silly, Herper added that the supporters had alleged that “Scher’s wife works for a hedge fund that might be short Dendreon…This is not true. She works in human resources for a nursing home company that could not conceivably benefit materially from any news about Dendreon.”

Aside from ignoring Scher’s ties to Milken’s ProQuest Investments, which would profit handsomely if Dendreon were not approved, Herper misconstrued the information about Scher’s wife. The truth was, Dendreon’s supporters had revealed that Scher’s wife had a cousin, Barry Lafer, who was a hedge fund manager. Phone records legally obtained by Deep Capture show that Scher called Lafer, at his office, on April 23, while Herper’s article was in the works.

But the main point of Herper’s article was that “all this debate” (i.e. the Wall Street whispering and the conjectures of two conflicted doctors) made “Dendreon an even riskier stock than other biotechs.” Herper added that according to unnamed “others,” Dendreon’s “studies do not rise to the level usually required for approval.”

Besides being false, this was another way of suggesting that the FDA panelists, all experts in their field, voted in favor of Dendreon because they had misunderstood the standards for approval. They had been asked the “wrong question.”

On April 29, Bloomberg News reported that Dendreon’s shares were being sold at “a record pace” as investors “bet the company’s experimental prostate-cancer drug will fail to win approval from U.S. regulators.”

Then, on May 4, there was yet another letter.  This one was from a University of Washington biostatistician named Dr. Thomas Fleming. It is perhaps noteworthy that Fleming had done work for Gerson Lehrman, an outfit that is owned by former hedge fund managers.

Gerson Lehrman has a remarkable business model which can best be described as “institutionalized bribery.” Clients, mostly hedge funds, hire Gerson to put doctors and other experts on the payroll. In exchange for the payments, the doctors agree to provide hedge funds with “insight” (some say they provide inside information) about clinical trials of drugs that are marketed by public companies. The doctors also agree to talk to reporters (and perhaps also to the FDA) about these drugs. In at least one case it has been clearly established that these hired sources lied (which could well explain, of course, why they were hired).

Like the letters from Dr. Scher and Dr. Hussain, within days of its creation Dr. Fleming’s missive miraculously ended up in the hands of The Cancer Letter, which eagerly published it.

“Reportedly Scher felt motivated to write the letter after being kept awake the night following the [advisory panel],” wrote Dr. Fleming. “I also was kept awake the night following the panel.”

In addition to knowing about Dr. Scher’s sleeping habits, Dr. Fleming shared Dr. Scher’s concern that approving Dendron’s treatment might derail Asentar, the drug that was being developed by Milken’s Novacea. How “could one defend internal consistency at FDA if [Provenge] were to be approved before the [Asentar] trial?” Fleming asked.

By this time, Dendreon’s supporters (a rambunctious bunch) were screaming and howling about the dishonesty of those who had suggested that the advisory panel had been asked the “wrong question.” So the party line changed a bit. Now it was that the panelists who had voted in Dendreon’s favor must have been somehow confused. Dendreon trials did not “provide ‘substantial evidence of efficacy’, Dr. Fleming wrote. “Rather at best, these trials provide plausibility of efficacy…”

I’ll leave it to the reader to parse the difference between “plausibility” and “substantial evidence.” But clearly, this letter was yet another strange occurrence.

Four days later – May 8, 2007 — the FDA told Dendreon that it was rejecting the company’s application for Provenge, a paradigm-shattering vaccine for those terminally ill with prostate cancer.

* * * * * * * *

The SEC’s partial data shows that more than 12 million Dendreon shares “failed to deliver” on May 10, 2007.  Traders are given three days to produce stock before their trades are registered as “failures to deliver,” so it is clear that hedge funds had sold the 12 million shares of phantom stock on May 7 — the day before the FDA made its decision. This suggests that somebody was aware of this imminent decision. We don’t know who engaged in that naked short selling because, as far as the SEC is concerned, it’s a big secret.

But we do know that a mere 10 hedge funds held large numbers of put options (a bet that the stock price would fall) as of March 31, a few days after the advisory panel’s nearly unanimous vote in Dendreon’s favor. Obviously, these were hedge funds with remarkable foresight concerning a long-shot event (the FDA’s decision to go against the overwhelming recommendation of its advisory panel to approve a drug for terminally ill cancer patients). Seven of those hedge funds belong to a mischievous Wall Street network that is known for its foresight – and for attacking companies that, coincidentally, are victims of illegal naked short selling.

Five of these hedge funds I have already named. All have ties to Michael Milken or his close associates. Some have ties to the Mafia. They are: Bernard L. Madoff Investment Securities, Perceptive Advisors, Millennium Capital, Steve Cohen’s Sigma Capital, and Pequot Capital.

In preparation for naming the sixth, we need to hearken back to September 2001, when two airplanes crashed into the twin towers of the World Trade Center, one crashed into the Pentagon, and a fourth dove into a field in Pennsylvania. On the day before that attack, a short seller named Anthony Elgindy called his broker and ordered him to liquidate one of his accounts, giving the explanation that a big event was about to occur. Mr. Elgindy said that on the following day (that is, on September 11, 2001) the market was going to  lose two-thirds of its value.

After the 9-11 attacks, that broker notified the FBI of Elgindy’s eerie prediction, and the FBI launched an investigation. In the course of this investigation, the government learned  that Elgindy had sold massive amounts of phantom stock, and that he routinely blackmailed and threatened companies that he was selling short. The government also learned that Elgindy had ties to terrorist outfits in the Middle East, and for a time prosecutors argued in court that Elgindy had advance knowledge of the 9-11 disaster.

Ultimately, though, Elgindy was convicted and sentenced to 11 years in prison for the more demonstrable crimes of stock manipulation and paying bribes to two FBI officials who fed him information from the FBI’s National Crime Information System (one of those FBI agents actually kept Elgindy informed of the progress of the investigation into Elgindy’s connection to the 9-11 attacks). In June, 2009, it was learned that the SEC’s inspector general had begun investigating SEC officials who are also alleged to have collaborated with Elgindy, either by providing inside information on commission investigations, or launching destructive, dead-end investigations of companies that Elgindy was selling short.

Elgindy, like Bernard Madoff  (the Dendreon short and Ponzi schemer who helped write the SEC’s rules on naked short selling), is believed to have ties to organized crime. He once worked for a now-defunct Mafia-connected brokerage called Blinder Robinson (known on the Street as Blind’em, Rob-em), and a source close to the Elgindy investigation has told Deep Capture that, shortly before Elgindy appeared for sentencing, Russian mobsters forced Elgindy to saw off the tip of one of his own fingers as a reminder not to squeal on other members of his network.

There is evidence – including transcripts of Elgindy’s private Internet message board – that shows that Elgindy routinely attacked public companies in collaboration with certain hedge fund managers. A significant number of these hedge fund managers were part of the Milken network.

One of them was Jeffery Thorp, whose father once worked with the Genovese organized crime family to develop a method for cheating Las Vegas casinos. The government’s investigation of Elgindy eventually led to Thorp, who was charged in 2006 with providing fraudulent “death spiral” PIPEs financing to 22 companies. The SEC’s case, one of the rare instances in which the commission has identified a naked short seller by name, makes it clear that Thorp sold massive amounts of phantom stock, ultimately destroying the 22 companies that had received his fraudulent PIPEs.

Recall that similar “death spiral” PIPEs were arranged by Carl Icahn’s Ladenburg Thalmann, ending in the phantom stock ruination of more than 20 companies. Icahn is the “prominent” investor who owes his status as a billionaire to Michael Milken and the Mafia-connected Zev Wolfson. Icahn is also the “prominent” investor who, along with Ziff Brothers and Steve Cohen, called ImClone immediately before The Cancer Letter published the “leaked” news of an FDA decision.  Icahn is also the “prominent” investor whose former employee was the last man to see Alain Chalem (a Mafia-connected naked short seller) before Chalem’s head was riddled with bullets by Russian mobsters.

Do you still not believe that this network has ties to the Mob? Consider that Thorp’s father, in addition to working for the Genovese organized crime family, was the single most important player in the stock manipulation network that Milken operated in the 1980s.

The father, Edward Thorp, ran a hedge fund called Princeton-Newport. The FBI eventually raided that operation, hauling away phone recordings and documents. Thorp was not ultimately charged, but the evidence that the FBI retrieved that day featured prominently in the prosecution’s 98-count indictment of Milken. Indeed, people who worked on the case say that the Princeton Newport evidence was far more important to the prosecution than the testimony of Milken’s more famous co-conspirator, Ivan Boesky.

Do you still not believe that people in this network employ precisely the same ruthless tactics? Consider that when the FBI investigated Elgindy, it also stumbled upon a hedge fund called Gryphon Partners. One of Gryphon’s portfolio managers, Jonathan Daws, was eventually charged with participating in various short selling schemes hatched by Elgindy and his bribed FBI agent. In pleading guilty, Daws said, “others at Gryphon made trades in some of the relevant stocks, independent of me, and not at my direction.” Daws was convicted.  No charges were immediately filed against Gryphon.

However, in 2006, the SEC sued Gryphon for providing fraudulent “death spiral” PIPEs financing to 35 companies. Like Thorp and the hedge funds introduced by Carl Icahn’s Ladenburg Thalmann, Gryphon provided its PIPEs financing knowing that it would cause stock prices to fall. The hedge fund then hammered the companies with naked short selling, sending their stocks into “death spirals.” Most of the 35 companies were destroyed.

So, at this point in the story, we have identified more than 70 companies that have been vaporized by “prominent” investors, all part of the same network.

At any rate, Gryphon Partners, the Elgindy-connected, PIPEs-financing, 35 company-destroying SEC-sued death spiral finance house, was founded by G. Stacy Smith and Reid S. Walker, two “prominent” investors who have since gone on to greater things. They now run a hedge fund called WS Ventures.

And WS Ventures is the sixth of our seven “colorful” hedge funds that had the foresight to own large numbers of put options in Dendreon at the end of March 2007, just after the seemingly fantastic news that the advisory panel had voted overwhelmingly in Dendreon’s favor, and during the period when Dendreon was awash in illegal naked short sales, and just before the disastrous news that the FDA had rejected the advice of its own advisory panel.

A few months later, Dendreon, on the verge of collapse and desperate for money to support its sabotaged prostate cancer treatment, went ahead and signed a deal to receive its first “death spiral” PIPEs finance.

* * * * * * * *

To be continued….Click here for Chapter 11.

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2) go here for additional suggestions: “So You Say You Want a Revolution?

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