Tag Archive | "naked short"

Europe Comes to Terms With Market Manipulation; the SEC and the American Media Bury Heads in the Sand

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Europe Comes to Terms With Market Manipulation; the SEC and the American Media Bury Heads in the Sand


Well, the current state of the global financial markets is certainly interesting. I mean, you have to be a bit sick in the head, but if you think about it the right way, it really is “interesting” — sort of like, oo-wee, look, the girl in the cute leotard is falling off the tightrope, there’s no net, and she’s going to go “splat” when she hits that pavement. How interesting! And check it out, the circus animals have gone berserk — the tigers are tearing the trainer into bloody shreds, the elephants are stampeding, the tent might very well collapse, maybe we’re doomed, and look at those clowns – they’re still smiling. How deliciously interesting!

Actually, I take it back — it is not in the least bit interesting. It is terrifying. Despite early attempts by the smiling clowns of the nation’s media and regulatory apparatus to portray the dramatic market collapse of May 6 as mere happenstance, it is now clear that this unprecedented event was no “fat finger” accident. It was not a “black swan” that appeared out of nowhere. And more than likely, it was not some anomalous but innocent trade that triggered a run-of-the-mill panic. What it was, exactly, nobody seems able to say – and that is what makes it all the more scary.

But we can venture some educated guesses, and my best guess is that this was an orchestrated attack on the stock market – an attack that shaved 1,000 points off the Dow Jones industrial average in a few minutes, and caused some stocks worth nearly $50 to drop to a penny in matter of seconds. I have been trying hard, but I simply cannot imagine any natural confluence of events that would cause this. I can, however, think of a number of criminal market manipulators who have caused similar, though less dramatic, events in the past. And I know that these manipulators would get a kick out of triggering a full-blown market cataclysm. They wouldn’t just get a thrill — they would also make a boatload of money.

At any rate, this much is clear: our financial system is seriously broken and the nation is vulnerable. If the May 6 “anomaly” was not an attack, there is every reason to believe that something worse can happen. It can happen because the Securities and Exchange Commission has done nothing to prevent it from happening. Despite overwhelming evidence that market manipulators contributed to the financial turmoil of 2008, not a single criminal has been apprehended. And not only does the SEC let the miscreants run loose, but it also stubbornly refuses to close gaping loopholes that enable market manipulation to occur.

To its immense peril, much of America seems disinclined to discuss market manipulation. I don’t know if it is indolence, incuriosity, or simple complacency, but the discourse in this country stands in stark contrast to the one taking place in Europe, where politicians and the mass media have declared unequivocally that the markets are under attack, with consequences that could be quite dire, to say the least.

According to BaFin, the German financial regulator, “massive” illegal short selling attacks have led to excessive price movements that “could endanger the stability of the entire financial system.” After beholding the drama in the American markets on May 6, and seeing its own market tumble precipitously, the German government finally took on the manipulators, banning naked short selling of stock in its largest financial institutions and restricting the trading of naked credit default swaps, which are often deployed in manipulative attacks.

Not all of the discourse in Europe has been helpful, however. German Chancellor Angela Merkel declared that “speculators are our enemies,” confusing law-abiding traders who passively speculate on price movements with criminal manipulators who actively seek to inflict harm on the markets. Chancellor Merkel only made things worse when she said that this is a “battle of the politicians against the markets” – a proclamation that reinforced the notion that Europe’s politicians harbor a disdain for the free market system. Our enemies are criminals, not market freedoms.

The European response has also been characterized by a certain degree of ineptitude. Germany had already banned naked short selling in 2008, and foolishly lifted the ban last January. Having given the market bullies the green light to attack, Germany’s politicians now appear like the playground dweebs, panicky and weak, hurling nothing more than small stones. It is presumed that the naked short selling and other manipulation will simply move to exchanges in London, where officialdom seems less inclined to fight. But Germany’s ban on naked short selling — though too little, too late — is perfectly sensible.

Which makes the American media coverage all the more inexplicable. The Wall Street Journal, which has for many years seemed incapable of even uttering the words “market manipulation”, reported that the German ban on naked short selling “sparked uneasiness” and actually caused markets to fall further. Sparked uneasiness? Only criminals could possibly be “uneasy” about a policy designed to prevent a crime. Perhaps some “uneasy” criminals are members of the hedge fund lobby, whose talking points tend to find their way into stories published by The Wall Street Journal.

As for the notion that a ban on naked short selling would cause markets to lose value – well, we’ve heard something similar before. It was back in 2008, when the SEC issued an emergency order banning naked short selling of stock in 19 big financial companies, only to have the hedge fund lobby (and The Wall Street Journal) holler that preventing crime would “reduce liquidity” and put downward pressure on markets.

This, of course, is precisely the opposite of what happened. While the emergency order was in place, the stock market surged. Then, on August 12, 2008, the SEC, for reasons that cannot be fathomed, lifted its emergency ban, allowing the manipulation to resume. The stock market duly tanked, and continued to spiral downwards until September, when market manipulators wiped out a large swathe of the American financial system.

It is not just me saying this. Respected economists, famous hedge fund managers, former government officials, and current U.S. Senators such as Ted Kaufman of Delaware have all studied the events of 2008, and the consensus is that illegal naked short selling and other forms of short-side manipulation contributed to the demise of Bear Stearns, Lehman Brothers, Washington Mutual, and countless smaller companies. In the months leading up to September 2008, criminal naked short sellers flooded the market with more than $8 billion worth of phantom stock every day.

As further evidence that The Wall Street Journal just doesn’t get it, consider that the newspaper reported this week that “under naked short selling, investors can sell securities before they have borrowed them. The practice is already banned in the U.S…” This, unfortunately, is patently false. Although the SEC took some half-hearted steps to prevent naked short selling in the aftermath of the 2008 carnage, it did not ban naked short selling outright — traders are still permitted to sell shares before they have borrowed them.

The SEC’s current rules state only that traders have to deliver stock within three days, or in some cases, six days after they have sold it. This means that market manipulators can flood the market with phantom stock for three to six days, inflicting serious damage on prices. When it comes time to deliver the stock they have sold, the manipulators buy stock (at the newly damaged price) on the open market and hand it over. Then they do it all over again – flooding the market with phantom stock for another three to six days.

In nearly every case, such naked short selling is designed to manipulate prices, which is blatantly illegal. But the SEC turns a blind eye to the manipulation so long as the manipulators deliver stock before the three or six-day deadline. In fact, the SEC often turns a blind eye even when the manipulators don’t deliver the stock. Every day, more than 100 million shares go undelivered before the anointed deadline, and that is in just one part of the system monitored by the Depository Trust and Clearing Corporation. Far more phantom stock is processed ex-clearing, and in other shadowy regions of the financial system.

The SEC would do well to investigate these shadowy regions in its attempt to identify the roots of the “freak accident” that took place on May 6. But, alas, the officials of that agency have been too busy picking buggers out of their noses. Ok, not just buggers – they also wrote a 100-plus page report on their investigation into the “market events” of May 6, and this report is filled with all sorts of statistics and enough head-in-the-clouds hypothesizing to bring a smile to the face of any university economist (or SEC report-writer) looking for a job at a market manipulating hedge fund.

What the report does not contain is the names of any culprits, or any evidence that the SEC is trying to identify specific culprits. The report does not even contain a plausible explanation for what happened. If the SEC were charged with writing a report on the causes of the New Orleans flood, it would provide a hundred pages telling us how many cubic meters of water there were, how many molecules of oxygen and hydrogen the water contained, and plenty of assurances that water is usually good for the health, but it would forget to mention hurricane Katrina and the broken levy.

Bottom line: the SEC’s report was designed to make it seem like the bureaucrats have been busy investigating, when in fact they have been counting beans and picking buggers out of their noses. Meanwhile, the madness of the market circus continues, and we look up at that teetering tent with great trepidation.

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

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



What follows is PART 15 of a 15-PART series. Soon, we will publish the full 15-part story as a single document.

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

Click here to read PART 10

Click here to read PART 11

Click here to read PART 12

Click here to read PART 13

Click here to read PART 14

Where we left off, we had learned that on March 29, 2007, an FDA advisory panel had overwhelmingly voted to approve Provenge, a prostate cancer vaccine developed by Dendreon.  As a result, most financial analysts and investors believed that Dendreon had a promising future. 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 expected 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 Milken himself stood to profit if Dendreon were to experience  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, Lindsay Rosenwald (a Milken crony who once helped run a Mafia-linked brokerage called D.H. Blair, 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. And hedge funds affiliated with Milken or his close associates were heavily invested in Cell Genesys, which was Dendreon’s third competitor.

We had learned further that Milken’s “philanthropic” outfit, the Prostate Cancer Foundation supported Novacea, Cougar and Cell Genesys. The Prostate Cancer Foundation’s support for these companies preceded announcements that they had signed massive deals with large pharmaceutical companies. In the cases of Novacea and Cell Genesys, those deals were soon cancelled on the news that their treatments were ineffective, and the companies’ investors quickly dumped their stock. This fact, combined with other evidence, suggests that the Prostate Cancer Foundation was supporting what amounted to sophisticated “pump and dump” schemes.

Meanwhile, the Prostate Cancer Foundation snubbed its nose at Dendreon. And in April, 2007, Dr. Howard Scher, who was an executive and director of Milken’s investment fund, ProQuest, and the chairman of the Prostate Cancer Foundation’s “Therapeutic Consortium”, spearheaded an unprecedented lobbying effort to convince the FDA to reject Dendreon’s treatment – the first time in history that the FDA had gone against an advisory panel’s recommendation to approve a drug for terminally ill patients. This lobbying effort had the support of government officials who have ties to Michael Milken.

In the days before and after the lobbying effort, Dendreon was trashed by a few captured journalists – most notably, CNBC’s Jim Cramer — and was also subjected to a blistering attack by naked short sellers who illegally flooded the market with millions of phantom shares to help drive down the company’s stock price. This criminal naked short selling continued intermittently for much of the next two years, while the SEC did nothing, and while other events conspired to hobble Dendreon, a company that had completed multiple clinical trials that strongly indicated that its product, Provenge, was capable of lengthening the lives of tens of thousands of men with prostate cancer.

Amazingly, the SEC will not reveal the names of the naked short sellers. As it says on its website, to release information about (illegal) naked short selling would be to reveal the (criminal) hedge funds’ “proprietary trading strategies.”

* * * * * * * *

When Dendreon’s FDA application was derailed simultaneously with a naked short selling attack that flooded the market with tens of millions of phantom shares, Dendreon’s supporters went berserk. They sent the government hundreds of letters complaining about the naked short selling and the apparent machinations of Michael Milken’s associates. After that, all but one of the ten hedge fund managers ceased to own “put options” in Dendreon.

However, the naked short selling continued pretty much unabated for two years. And in April 2009, Dendreon was once again on the SEC’s “Reg  Sho” list of companies whose stock was “failing to deliver” in excessive quantities.  Dendreon stayed on that list even after the company’s CEO announced that results of an Independent Monitoring Committee study of 500 patients were “unambiguous in nature…a clear hit” for Provenge.

After the CEO’s announcement, Dendreon’s stock, which had been as low as $4 weeks earlier, rose to the mid-20s. Then, on April 28, 2009, just hours before Dendreon was to present this “unambiguous” data to an all-important meeting of the American Urological Association, the now legendary Yahoo! message board post appeared, warning of  a “BEAR RAID” that was to occur at precisely 12:30pm Central time. Right on cue, Dendreon’s stock tanked 65% in matter of 75 seconds (to $7), within minutes of the moment predicted by that message.

Within hours after that amazing crash, Nasdaq announced that it had investigated the matter and decided to let the trades stand. This was quite remarkable, given that it would have been impossible for the exchange to determine the identity of that message board poster and sort through the trading data in such a short period of time. It is all the more remarkable considering that this “BEAR RAID” was most likely the work of naked short selling criminals.

At any rate, it is likely that short sellers, recognizing that it was now going to be more difficult to prevent Dendreon from getting FDA approval, used the opportunity of that sharp price drop to cover their short positions. Some short sellers might also have used the opportunity to buy shares, hoping to cash in on the bonanza that was to follow. After the “BEAR RAID,” Dendreon’s stock price quickly rose above $27.

The night after the “BEAR  RAID”, CNBC’s Jim Cramer (who has begun a “crusade” against the crime of naked short selling in an effort to distance himself from his previous efforts to cover up the crime of naked short selling) said “I’m not qualified to talk about Dendreon.” This was just two weeks after Cramer had screamed that Dendreon had no chance of receiving FDA approval. Now, he was no longer commenting on Dendreon’s chances, but he noted,  “I am a big believer in taking profits when I see a short squeeze. So I am going to recommend taking profits.”

Some people clearly did take profits. After Cramer’s comment, the stock started to fall, and by May 8, it was at $19. Then the buying started again. Quite possibly, some of the hedge funds that had been short selling Dendreon used the dip to $19 to purchase still more Dendreon shares. After May 8, the stock rose back up to around $25, which is approximately where it remains today. When SEC filings for this period are in, it will be interesting to see which hedge funds bought shares.

But it will remain impossible to know who the criminal short sellers were. As far as the SEC is concerned, that is a big secret –  “proprietary trading strategies.”

* * * * * * * *

After Dendreon reported its data to the American Urological Association –data that showed almost precisely what the data showed two years earlier (that is, that Provenge was safe, and that it lengthened survival times while greatly improving the quality of life for end-stage prostate cancer patients who would otherwise be subjected to the misery of chemotherapy) — Milken’s Prostate Cancer Foundation, which had long shunned Dendreon while Milken’s allies maneuvered to derail it, finally concluded that it was time to say something positive about Provenge.

“The PCF is delighted to see evidence of increased patient survival from Provenge,” the Milken “philanthropic” foundation said in a press release. “We share the analysis of Dr. Philip Kantoff, a leader in the PCF Clinical Therapy Consortium…and a principal investigator of the Provenge Phase III clinical study. The results validate 16 years of modern research to harness a patient’s own immune system to fight their prostate cancer and prolong their lives…”

The Prostate Cancer Foundation continued: “The PCF first provided funding to Dr. Eric Small…to support clinical research around measuring immune responses in patients treated with Provenge…”

In other words, Milken’s “philanthropy” hadn’t spent two years ignoring, and in some cases trying to quash Dendreon’s treatment. In fact, the Prostate Cancer Foundation had supported Dendreon all along!

This is nonsense. What the Prostate Cancer Foundation did not mention is that Dr. Philip Kantoff, the physician mentioned in the press release, was on the advisory board of Cougar Biotechnology, the company that Milken’s “philanthropic” foundation was promoting as a better alternative to Dendreon.  Moreover, Dr. Kantoff was one of the few physicians to publicly cast doubts on Provenge. He was never able to say that Provenge did not work, but when talking to the press at the time of the FDA advisory panel meeting in 2007, he was dismissive, or at least confused.

“I didn’t think [Provenge] had a snowball’s chance in hell of working,” Dr. Kantoff told Forbes magazine’s Matthew Herper, the journalist who went to lengths to argue against FDA approval. “I’m still skeptical, but I think there’s something going on here.” Kantoff suggested that Provenge could be a “slam dunk,” but maybe the trial size was too small. Left unmentioned was the fact the FDA had regularly approved treatments for dying patients when relatively small trials had shown such stunning results.

As for Dr. Small, he too was on the advisory board of Cougar Biotechnology. The Prostate Cancer Foundation did indeed give him funding to measure immune responses in patients treated with Provenge, but it is not at all clear that Milken’s “philanthropic” outfit was keen to see Dr. Small’s study yield positive results. When the study did yield positive results, Dr. Scher, the chairman of the Prostate Cancer Foundation’s Therapeutic Consortium (referred to in the above press release as the “Clinical Therapy Consortium”), spun them as negative results.

In his letter to the FDA (the one that quickly and mysteriously ended up in the hands of The Cancer Letter), Dr. Scher quoted Dr. Small as saying the following: “In summary, this study suggests that while sipuleucel-T fell short of demonstrating a statistically significant difference in TTP, it may provide a survival advantage to asymptomatic [prostate cancer] patients.” Dr. Small had not written the word “may” in italics. That was Dr. Scher’s improvisation, part of his effort to convince the world that absolute “proof” of efficacy was needed for FDA approval.

As both Dr. Small and Dr. Scher knew, the “gold standard” for physicians, and the federally mandated standard for drug approval, is “survival” — “substantial evidence” that a treatment may help patients live longer. Perhaps Dr. Small felt constrained in challenging Dr. Scher’s misuse of his study. Perhaps he also felt uncomfortable about joining Dr. Scher, who was, after all, the powerful chairman of Milken’s Therapeutic Consortium, at the meeting of the FDA advisory panel that voted on Provenge in March 2007.

Dr. Small was supposed to speak on behalf of Provenge at that panel. Perhaps this concerned the folks at the Prostate Cancer Foundation. Either way, Dr. Small was a no-show at the panel that day.

He apologized – something about a hitch in his travel plans.

* * * * * * * *

In May 2009, while Milken’s Prostate Cancer Foundation was rewriting history, Milken’s hedge fund crony, Steve Cohen, who was one of those seven hedge fund managers who had bet big against Dendreon after the advisory panel meeting in 2007, reached out to Care-to-Live, the grass-roots organization that had done so much to highlight the connections among Milken’s “philanthropy,” Milken’s investments, and Dendreon’s travails

On May 19, one of Care-to-Live’s founders received an email from an employee of CR Intrinsic Investors, which is one of Steve Cohen’s hedge funds.  “I’m an investor in biotechnology and pharmaceutical companies and I’m interested in understanding the patients perspective on Provenge and any other therapies in development…,” the email began. “Would you or someone from Care-to-Live be available speak with me…? I have spoken to a number of academic thought leaders, but I’d like to better understand what the patients want…”

And by the way, “I’m happy to provide compensation for time spent speaking with me if that is of interest.”

Milken-affiliated hedge funds already have analysts and journalists regurgitating their party line on command. They also have doctors on the payroll. Might as well put the troublemakers on the payroll, too.

* * * * * * * *

Or perhaps Cohen is genuinely thinking about investing in Dendreon. Perhaps he already has. The intentions of this network remain a matter of some speculation.

Much of this speculation focuses on Dmitry Balyasny, the Russian “whiz kid.” As recently as March of this year, when they filed their last SEC documents, Balyasny’s hedge fund, Visium, held around 900,000  call options in Dendreon. Simultaneously, the hedge fund owned 860,000 put options. It is possible that Balyasny and his associate, Jacob Gottleib, were implementing a split-strike pricing strategy – selling out of the money calls and buying out of the money puts. The effect is to create a large synthetic short position.

SEC documents show that during much of the past two years, Balyasny’s funds also owned large numbers of Dendreon shares. These could have been shares that they bought to cover short positions. Or it could be that they owned shares to gather proxy votes and put pressure on Dendreon’s management to act in ways that might not be  good for the company.

Dendreon’s latest Schedule 14-A, filed on April 30, showed that Balyasny (remember, Balyasny’s other fund was previously one of the seven hedge funds with large  bets against Dendreon) had become one of Dendreon’s largest shareholders, with a 5.5% stake in the company. Another major shareholder was Capital Ventures International, the unit of Susquehanna that did the PIPEs deal with Dendreon. Meanwhile, Joseph Edelman, the hedge fund manager who was employed in 2007 by Lindsay Rosenwald, formerly of the Mafia-connected D.H. Blair, has bought at least 2 million Dendreon shares.

In addition to those purchases, many of the Milken network hedge funds that bought Dendreon’s convertible bonds now have the capability to convert, so  they, too, might soon count themselves among Dendreon’s largest shareholders. Altogether, this network may already control (or have the ability to convert into control of) as much as 30% of the company.

It is possible that this network is planning to seize control of Dendreon by stealth. This was the modus operandi of the Milken network in the 1980s. As most every book on Milken recounts, affiliated investors (some combination of Milken, Ivan Boesky, Carl Icahn, Princeton-Newport, John Mulheren,  and others) would each buy, say, 4.9% or 9.8% of a company without declaring themselves to be affiliated investors. In some cases, Milken would “park” stock (e.g. Princeton would secretly buy stock on Milken’s behalf) in order to conceal that he had any ownership at all.

By secretly holding large blocks of shares, the network was able to acquire controlling stakes while bypassing regulatory requirements to declare such positions. Besides putting them in a position to manipulate prices, Milken and friends then put pressure on companies’ managements by quietly letting it be known that they had, as a group, a controlling number of proxy votes.

If Milken’s friends come to control Dendreon, Milken’s “philanthropic” foundation will no doubt continue to articulate its new position of being “delighted” that the data shows that Dendreon’s treatment is safe and effective (which is the same thing the data showed two years and 60,000 American deaths ago). And if the Milken network takes over Dendreon, perhaps Michael Milken will, in the name of “philanthropy,” convince his government minions to grant approval to Provenge, so that it can be administered to the patients who so desperately need it.

But that should not cause us to ignore the ordeal that Dendreon has endured during these past few years. And we should demand an end to a status quo which lets Wall Street miscreants, cheats, and manipulators (and not free markets) decide which companies survive unmolested, and which will be crippled or killed off entirely.

But it is not surprising that criminals see fit to maim public companies.

Consider that it is impossible to buy life insurance on another person’s life. The legal principle has developed that one can only insure something in which one has “an insurable interest.” But imagine that this were not the case. Imagine if it were possible for people to buy insurance on other people’s lives. One can see that there might evolve a type of criminal who would buy life insurance on the lives of others, and then arrange for those people to die.

One can even imagine that, as society wised up to this practice of buying life insurance and then manipulating outcomes, such criminals would evolve new tactics towards the same end. For example, the criminals might target newborn babies in hospitals, because babies are vulnerable, and it would be difficult for anyone to know for certain whether they were dying naturally, or as a result of criminals manipulating outcomes.

One could even imagine that the most sophisticated of these criminals would come to target newborn babies who were already sick, because manipulating their medical outcomes in order to cause their deaths would leave the slightest statistical footprint possible.

In our society one cannot buy life insurance on another person, but one can buy “life insurance” on a company: that is, one can make a bet that a company will fail, and collect on that bet when the company dies. It is the contention of Deep Capture that there are criminals who take out life insurance policies against companies, and then manipulate their outcomes so as to collect on those policies.

And just as we can understand the logic of criminals focusing on newborn babies, so too can we understand why the financial criminals have learned to focus on small, early-stage public companies. And to extend the morbid metaphor one last step: just as the criminals might focus on newborns who are already sick, because their outcomes are already in the most doubt (making the criminal manipulations hardest to spot), so too have the financial criminals learned to focus not just on early-stage public companies, but on early stage public companies working in the field of biotechnology.

That is because in biotechnology the difficulties in valuing a company are at their greatest. There is often little to no revenue.  The idea behind the company may be nothing more than the theory of a scientist. No one knows whether it will work. If it works, no one knows how long it will take to prove that it works. And even if it can be proven to work, no one knows how long it will take to clear all the legal and regulatory hurdles it will face. Such companies are favored targets for manipulators because it is easy to manipulate the truth when no one knows the truth, and whatever truth there is lies behind so many veils.

In the case of Dendreon , the truth was hard to miss. It was more than a company with a blockbuster treatment. It was the first company in decades to develop a medicine that could truly revolutionize the way that doctors treat cancer. The company had gathered its data, and the data was conclusive (to a 95% confidence level): Provenge was safe and effective. A panel of experts assembled by the FDA had declared that the treatment should be approved.

So when naked short sellers attacked, and the treatment was derailed, it was obvious that there had been foul play. Hundreds of concerned citizens took it upon themselves to investigate, and document, the footprints of the miscreants. As a result we have been able to present a highly discernible, if admittedly imperfect, picture of their trail.

But we must ask: How many other small biotech companies have been victimized in less obvious ways? How many companies were like the babies in our morbid metaphor — snuffed out before they could demonstrate their potential; killed by criminal naked short sellers and their captured accomplices (journalists, regulators, doctors) who successfully pled innocence, saying the companies died because they were sick or weak? And how many of those murdered companies, weak or not, had medicines that could eventually have improved health and saved lives?

Our morbid metaphor, you see, is not entirely metaphor. Real people have died.

In answer to the question of how many people have died, we know only from the data that abusive and illegal short selling has affected many hundreds of small biotech companies with all manner of medicines. We know that the vast majority of those companies are now gone, and that some number of them, if left to the rigours of the market, but not to the whims of criminal short sellers, would have one day delivered their medicines to patients.

But, of course, we do not know who the criminal short sellers are. According to the Securities and Exchange Commission, that is a big secret – “proprietary trading strategies.”

THE END

* * * * * * * *

Note: The original draft of this story incorrectly stated that BAM Capital was affiliated with Dmitry Balyasny’s Balyasny Asset Management. Having mistaken BAM Capital with Balyasny’s fund, I aslo suggested in the original draft of this story that Balyasny had aquired more than ten percent of Dendreon’s shares in the Spring of 2009. This was incorrect. Balyasny’s Visium hedge fund had aquired 5.5% of Dendreon’s shares. I regret the error.

Posted in Featured Stories, The Deep Capture Campaign, The Mitchell ReportComments (76)

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.

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

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

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 9 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 9 of 15)



What follows is PART 9 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

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 predicting that Dendreon’s future looked extremely promising.

As we had also learned, 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. Michael Milken himself also stood to profit if Dendreon were to experience any problems receiving FDA approval. This is because Milken was the early financier and principal deal maker for ProQuest Investments, a fund that controlled, along with an affiliate, a company called Novacea, which was one of Dendreon’s putative competitors in the race to produce a new treatment for prostate cancer. Meanwhile, a Milken crony, Lindsay Rosenwald (who once helped run a Mafia-linked brokerage called D.H. Blair) controlled Cougar Biotechnology, the only other company that purported to be developing a treatment for prostate cancer. 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 history of publishing information leaked from the FDA, and reputation for being an organ of Wall Street hedge funds, published a confidential letter to FDA commissioners from an FDA-contracted doctor named Howard Scher, who was a board member and executive of Milken’s ProQuest Investments and the chairman of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation.  In this 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.

Now we learn more about Dr. Scher’s letter…

* * * * * * * *

As Dr. Scher made clear in his letter, his concern about Dendreon was not, strictly speaking, that it didn’t work, but that it would render irrelevant his work on Novacea’s competing treatment, Asentar. A new phase 3 trial to test the effectiveness of Asentar (referred to in the letter by its medical name, DN-101) had been “designed, initiated and continues to accrue,” Dr. Scher wrote. “I am the International Investigator on this trial.”

Nowhere in his letter (and nowhere in the conflict-of-interest waiver form that he submitted in order to get a seat on the FDA advisory panel that voted on Dendreon’s treatment) did Dr. Scher mention that he was not just the lead investigator in the Asentar trials, but also a board member and executive of Milken’s ProQuest Investments, which was, along with affiliate Domain Associates, the biggest investor in Novacea, the company that was developing Asentar.

Also left unmentioned was the fact that Dr. Scher was the chairman of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation. The “Therapeutic Consortium” helps Milken’s “philanthropic” outfit decide which treatments and hospitals deserve its support.  It is clear that the Prostate Cancer Foundation’s donations to hospitals such as Dr. Scher’s Memorial Sloan are linked to the hospitals’ support of specific treatments being developed by specific Milken-affiliated companies.

For example, in one typical press release, the Prostate Cancer Foundation stated that the “Therapeutic Clinical Investigation Consortium [the Milken Prostate Cancer Foundation outfit of which Dr. Scher is the chairman] played an important role by accelerating testing of this new agent [Abiraterone, the agent developed by Milken crony Lindsay Rosenwald’s Cougar Biotechnology] in Phase II clinical trials…Right now, at MD Anderson and Memorial Sloan-Kettering, both NCI funded cancer centers, the Phase III trials of Abiraterone [Cougar’s treatment] are going on. PCF contributions to Sloan-Kettering reached $18 million to date, possibly more…”

In other words, Milken raised money from unsuspecting donors, including the ordinary folks who slipped cash into the buckets that the Prostate Cancer Foundation places outside of supermarkets and shopping malls. Then Milken, with the support of Dr. Scher, directed that money to Dr. Scher’s hospital, with the understanding that Scher and his hospital would attach their prominent names to drugs developed by companies in which either Milken or Milken’s friends were investors.

Keep in mind that the prostate cancer drugs developed by Milken-affiliated companies were in the earliest stages of development – there was not yet much evidence that they could help patients. But, as we will see, there was lots of potential for them to make money for Milken and his friends.

Meanwhile, the Prostate Cancer Foundation and affiliated doctors diverted attention, or (in the case of Dr. Scher) attacked Dendreon, the only company with a new treatment for prostate cancer that could be delivered to patients right away, and for which “substantial evidence” existed that showed it worked.

This is not exactly “philanthropy” in its purest form.

* * * * * * * *

Remember, on March 29, 2007, when Dr. Scher sat on the FDA’s advisory panel, he was one of the 17 doctors who voted unanimously that Dendreon’s treatment was safe. And two weeks later Dr. Scher wrote a letter to the FDA in which he vigorously trashed Dendreon’s treatment.

As mentioned, this letter was strange in that it was unprecedented for an FDA-contracted doctor to lobby the FDA after an advisory panel had already voted. It was strange in that the presumably confidential letter was quickly published by The Cancer Letter, an outfit with a reputation for being an organ of short selling hedge funds. And the letter was strange in that it was disingenuous, to the say the least.

For one, Dr. Scher seemed to have changed his mind with regards to the safety of Dendreon’s treatment.

In his letter to the FDA, he noted that the advisory panel had discussed the fact that Dendreon’s trials showed that 4.9% of patients treated with Provenge had experienced “cerebrovascular events” compared to 1.7% of patients who were given a placebo.

The panel’s 17 doctors, Scher included, had voted unanimously that this was an acceptable risk for patients with a deadly disease – especially since, in other regards, Provenge appeared to be perfectly safe.  But now Scher was insisting in a letter to the FDA that these rare “cerebrovascular events” (few of which were fatal) were worrisome enough to deprive end-stage prostate cancer patients of a treatment that might extend their lives.

But Dr. Scher’s “cerebrovascular events” argument was not new. It was precisely the same canard that had been delivered to the press by those dubious Wall Street players — the singing Sendek, and doctor-impersonating Aschoff, the troubled UBS, and the whispering hedge fund managers.

As to the effectiveness of Provenge, Dr. Scher averred in his letter that Dendreon had not met its “primary end-points” and the data was “not considered definitive.” He insisted that the treatment be delayed until Dendreon could provide “proof” that Provenge extended lives.

This was absurd. As Dr. Scher must have known, rarely in history has data on an experimental treatment shown definitive “proof” that the treatment works in every case. Instead, the legally established criteria for FDA approval (especially of treatments for life-threatening diseases) is that the data show “substantial evidence” that the treatment improves the health of patients.  Neither medicine nor science progresses by “definitive proof”.

Even if trials do not meet their “primary end-points,” the FDA usually approves treatments for deadly diseases if the odds are nonetheless good that the treatments increase survival. The odds might not be 100 percent, but if they are 98 percent, or even 51% percent, the treatment should be delivered to patients who will otherwise die. This criteria – “substantial evidence” of increased patient survival – is referred to as “the Gold Standard” by FDA officials and doctors everywhere.

In any case, “it may be time we focus less on statistical significance, and more on patient benefit.” So said Dr. Scher himself, in an interview with a medical journal, just a few weeks before he wrote a letter to the FDA harping on Dendreon’s statistical significance. Most likely, Dr. Scher was thinking about his trials of Asentar (the drug under development by Novacea, which was controlled by Milken’s ProQuest Investments and an affiliate) and Abiraterone (the drug developed by Milken crony Lindsay Rosenwald’s Cougar Biotechnology). These trials had not yielded particularly good results.

In fact, as we will see, Asentar was not just unhelpful to patients. During trials of the treatment, patients dropped dead. They dropped dead earlier than expected. And, as Novacea later acknowledged, the cause was clear: Asentar actually killed a significant number of people who were hoped to benefit from it. Provenge  increased “cerebrovascular events” in a small number of patients, but patients on Asentar died in such large numbers that Novacea had to discontinue its trials of the drug.

The question is: Did Milken’s Prostate Cancer Foundation, Dr. Scher, and the Wall Street hedge funds really believe that competing treatments were superior to Provenge when they began their attack on Dendreon?  Or were their attacks motivated by their financial interests?

* * * * * * * *

It was not necessary for Asentar to receive FDA approval in order for Milken’s ProQuest to make heaps of money from its investment in Novacea. As we will see, the Milken clan had hatched a plan to cash in on their Novacea stock, regardless of what the FDA had to say about the company’s prostate cancer treatment, and regardless of whether that treatment would eventually be shown to kill an unacceptable number of people.

Same goes for Cougar Biotechnology’s investors, who included not just controlling shareholder Lindsay Rosenwald (who once helped run the Mafia-affiliated D.H. Blair, which was indicted on 173 counts of securities fraud and was famous for pumping phony biotech companies), but also two of the seven Milken network hedge funds that were betting big against Dendreon. Cougar’s treatment, supported by Milken’s philanthropy and by the four Prostate Cancer Foundation doctors who sat on Cougar’s advisory board, was virtually untested, but as we will see, this did not prevent the company’s investors from cashing in.

When Dendreon came under attack, similar plans to cash in had been hatched by investors in a company called Cell Genesys, whose experimental (and, we will see, ineffective) treatment was promoted in a most peculiar fashion (which I will describe in due course) by Milken’s Prostate Cancer Foundation.

Investors in those companies did not need FDA approval to make money, but as we will see, their money-making plans would have been foiled if Dendreon had received approval. In reading the transcript of the FDA advisory panel meeting that voted on Provenge in March 2007, one has to wonder if  Dr. Scher—who led trials for not only Novacea and Cougar, but also Cell Genesys–knew of these money-making plans, and if this knowledge informed the lobbying he undertook at the panel meeting, and in the days following it.

Among Dr. Scher’s more revealing statements at the advisory panel meeting was this: “So if I start thinking, am I denying a potentially useful agent [Dendreon’s Provenge] to men who clearly need it, the answer is unfortunately I don’t know. So I say, well, what if we think that this really should be available, start thinking about the number of agents that are currently under development.”

This is the same message that was whispered in the ears of reporters, who eagerly transcribed it into their stories. If the FDA approved Provenge, they said, it would become the standard of care. This would be unfortunate because other treatments “under development” might be better. The problem with this argument is that there were very few other treatments “under development.” And when Dr. Scher referred to treatments “under development,” there was little else he could have been referring to other than the above-mentioned Asentar (Novacea), Abiraterone (Cougar Biotechnology), and GVAX (Cell Genesys).

As mentioned, Dr. Scher was connected to all three of those companies. Novacea’s Asentar, we know, was killing people. At the time of Dr. Scher’s attack on Dendreon, Cougar’s Abiraterone had been tested on a total of 38 patients. The data showed that some of those 38 patients saw their blood tests improve, and Cougar Biotechnology trumpeted this information in multiple press releases, but there was zero evidence that Abiraterone increased patient survival. GVAX had been tested on 80 patients, and some of them lived longer, but the data did not yet show “substantial evidence” that GVAX was the reason.

All of these treatments had undergone only Phase 2 trials, whereas Dendreon had completed Phase 3 trials on 170 patients. The data from the Dendreon trials had reached statistical significance, and showed that Provenge reduced mortality. In other words, none of the competing treatments (all financed by Milken or Milken’s friends and promoted by Milken’s “philanthropic” foundation) had come anywhere close to achieving results like Dendreon’s.

But Dr. Scher was insistent – ”a number of alternatives [those "alternatives" being drugs under development by Milken and his cronies with the assistance of Dr. Scher and Milken’s ‘philanthropy’, drugs that would prove, in time, to be inferior] were “currently under development.”  And so patients must not have access to Dendreon’s drug  – a drug that was capable of saving lives right away.

* * * * * * * *

To understand the lengths to which some people went to derail Dendreon, it is necessary to recall the Dendreon conference call, when the singing-Sendek kept asking whether the FDA might have to “change the question.”  Others on Wall Street were whispering about “the question,” the press transcribed into their stories these same whisperings about “the question,” and Dr. Scher made  “the question” a key feature of his letter to the FDA. All of them suggested that the FDA advisory panel vote was invalid because the 13 panelists who had voted that Provenge worked had, in fact, voted on the “wrong question.”

The transcript of the Dendreon advisory panel meeting clarifies what was meant by all of this questioning of the “question”. As noted, advisory panels are always asked to vote on two questions: Is the treatment safe? And, is there “substantial evidence” that the treatment is effective?

This is not just custom. It is the law of the land. The 1962 Kefauver Harris Drug Amendments, ratified by the U.S. Congress, stipulated that manufacturers of drug products must establish a drug’s effectiveness by “substantial evidence.”

On the first question, “Is the treatment safe?” the advisory panel had voted “yes”, 17-0. Those 17 included Dr. Scher (though, as has been explained, within weeks he was lobbying the FDA by raising doubts as to the safety of Provenge).

The second question to be addressed was, therefore, “Is there substantial evidence that the treatment is effective?” Dendreon had clearly met this standard – the “Gold Standard” of providing “substantial evidence” of increased survival.

But remarkably, somebody at the FDA advisory panel meeting rewrote the “question.” The chairman of the panel read the question out loud: “Does the submitted data establish the efficacy of [Provenge] in the intended population?”

Immediately, there was confusion. This was not the usual question. Did “establish the efficacy” mean that the panelists had to vote on whether the data had proved, with 100% conclusiveness, that Provenge extended lives? No experimental drug had ever faced such a standard.

Dr. Scher interjected to say that Dendreon’s trials had failed to meet their “two primary end-points.” To this, the FDA’s representative on the panel, Cecilia Witten, remarked that the FDA was aware that the trials failed to meet its two primary endpoints, but that was not the issue. The issue was whether the evidence suggested that Dendreon’s treatment saved lives.

“You know,” Witten said. “We’re given the application based on survival.”

The chairman of the panel resumed with the same question. “Again I’ll read it,” he said. “Does the submitted data establish the efficacy…?”

Thus began the voting. Dr. Scher quickly voted, “No.” So did another physician, Dr. Maha Hussain, and two other doctors. But confusion reigned.

One panelist, a certain Dr. Alexander, said, “So that’s – so my vote is, I don’t know what you would call that…”

A Dr. Chamberlain said, “Well, so I guess at this point I’m not sure how to answer this question. It’s not a yes or no question in my opinion the way it’s phrased. With the safety data and with what we’ve seen, I see no reason not to make this drug available, but I don’t think it’s 100 percent proven that it’s efficacious.”

A Dr. Chappell said, “There’s a degree of belief, and ‘establish’ implies much more certainty…you need please, to specify, at least to me, what you mean.”

A Dr. Alexander piped in, “Like is it a reasonable doubt, a shadow of a doubt?”

At this, there was a lot of mumbling and some laughter. Finally, the FDA’s representative clarified. “Yes,” she said, “the regulatory definition is ‘provide substantial evidence.’ So that’s our standard. Is there substantial evidence that it works…”

The chairman of the committee responded, “So just to clarify what you’re asking, is there substantial evidence that the product is efficacious?”

“Yes,” said the FDA’s representative.

That resolved any doubts, and 13 of the 17 doctors on the panel confidently voted “Yes.”  That is to say, when the doctors voted on the correct question – the question that was stipulated by law, as opposed to the question that had been tampered with — the overwhelming consensus was that Dendreon’s treatment should be approved.

* * * * * * * *

To be continued….Click here for Chapter 10.

If this article concerns you, and you wish to help, then:
1) email it to a dozen friends;
2) go here for additional suggestions: “So You Say You Want a Revolution?

Posted in Featured Stories, The Deep Capture Campaign, The Mitchell ReportComments (80)

Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 8 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 8 of 15)



What follows is PART 8 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

Where we left off, we had learned that Dendreon had come under a blistering, illegal naked short selling attack, right at the time that the FDA’s expert advisory panel had voted overwhelmingly that the company’s promising treatment for prostate cancer should be approved, and right before that treatment was to be derailed by some strange occurrences.

We had learned further that in the days before those strange occurrences only ten hedge funds on the planet were known to possess large numbers of Dendreon put options (bets against the company), and seven of those hedge funds were tied to Michael Milken or his close associates. Also, we had learned that Michael Milken himself, through a fund called ProQuest Investments, stood to profit from the demise of Dendreon through ProQuest’s investment in Dendreon’s competitor, Novacea.

While Milken was the principal investor and dealmaker for ProQuest, the fund was ostensibly founded by two men, Jay Moorin and Jeremy Goldberg, who had interesting backgrounds. Moorin had founded Magainin (later renamed “Genaera”), a drug company that specialized in curing cancer and other ills with all manners of potions derived from exotic beats, but over its 30 year history, ending with its closure last month, never actually produced a drug.

Goldberg, I noted, was best known for founding a biotech company called Versicor with a man named Timothy Barberich, who was simultaneously bankrolling a casino venture with a shady businessman named Adam Kidan and an alleged Mafia bookkeeper named Anthony Moscatiello. Kidan and Moscatiello, meanwhile, wound up in a business dispute with Konstantinos “Gus” Boulis, who was subsequently murdered, execution-style.

These two individuals – Jeremy Goldberg and Jay Moorin – were the front men for Milken’s fund.

Now we learn more about Milken’s ProQuest Investments, and begin to describe those strange occurrences that derailed Dendreon in the spring of 2007….

* * * * * * * *

Adam Kidan was named as a suspect in the murder of Gus Boulis and was questioned, but never charged. Instead, he went to jail for his dealings with Jack Abramoff, the disgraced Washington lobbyist. Moscatiello, the alleged Mafia bookkeeper, was arrested and charged with the murder. When he was released on parole, he disappeared. Lately, he has been featured on the popular television program, “America’s Most Wanted.”

Barberich, chairman of Versicor, said he hardly knew Moscatiello or Kidan, and only got involved as the chief financier of their casino because he’d seen an advertisement in a newspaper. Meanwhile, Jeremy Goldberg left Versicor and “founded” ProQuest Investments, Michael Milken’s vehicle for investing in companies that supposedly have treatments for prostate cancer.

Milken is barred from the securities industry, so even though he seems to have been largely responsible for building ProQuest, it is not surprising that he does not appear on ProQuest’s website. Goldberg’s name isn’t listed either. And there are a few other names that disappeared from the website after people began investigating ProQuest.

Among the missing are the names of the people who sit on ProQuest’s advisory board of directors. Thankfully, we have screenshots of the fund’s website, taken prior to the whitewashing.

The screenshots show that at the time that Dendreon was getting mauled in 2007, ProQuest’s advisory board included the following: Jonathan Simons, president and CEO of Milken’s Prostate Cancer Foundation; Howard Soule, executive vice president of Milken’s Prostate Cancer Foundation; Stuart Holden, medical director of Milken’s Prostate Cancer Foundation; William G. Nelson, a doctor who sits on the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation; James Blair, manager of ProQuest affiliate Domain Associates and a board member of Milken’s Prostate Cancer Foundation; David B. Agus, a doctor with Milken’s Prostate Cancer Foundation; and, finally, a doctor (I’ll introduce him shortly) who was the chairman of the “Therapeutic Consortium” of Michael Milken’s Prostate Cancer Foundation.

In other words, ProQuest Investments, which is Milken’s investment fund (though Milken doesn’t tell people that), enjoys remarkable overlap with  Milken’s “philanthropic” outfit, the Prostate Cancer Foundation.

Which raises a question: What does the Prostate Cancer Foundation do with the money that it solicits from generous people — not just wealthy donors but also average folks who want to fight cancer and donate what they can?

I do not mean to be dismissive of a philanthropy. I am sure there are well-meaning people who work at the Prostate Cancer Foundation. It has served as a forum for many of the world’s leading doctors to exchange information, and it has raised awareness of a terrible disease. All philanthropy, one can argue, is good. And since Milken himself is a prostate cancer survivor, one is inclined to believe that his interest in battling the disease is genuine.

But that might be to underestimate Milken’s love of “the game” — his desire to be a player in the world. It might also be to underestimate the particular world that Milken inhabits. It is a world of people who desire money, yes, but who perhaps desire in greater measure both stature and influence. For stature and influence blind the public and soothe the conscience.

For the miscreant, to play “the game” is fun. To play the game and cheat is more fun still. But it is perhaps also as simple as this: the miscreant desires to feel no shame. He wants to be able to say to himself, “I am important. I am prominent… .I have the approval of others.”

Certainly, Milken has used his “philanthropy” to ingratiate himself with the establishment and the public at large. He is one of the few convicted criminals who has returned to “prominence.” So, it seems, he has gotten one over on us. He has won. But “the game” is never over.  And in the view of Deep Capture, winning matters more to Milken than battling the disease that once afflicted him.

Yes, it’s all about “the game.”

This might explain why Milken’s “philanthropic” outfit snubbed its nose at Dendreon, a company that did not have a cure for prostate cancer, but did boast the most promising new treatment available—a treatment that could have been safely administered to patients right away. This might explain why Milken’s Prostate Cancer Foundation instead supported Novacea, a company whose controlling shareholders were Milken’s ProQuest Investments and Domain Associates. As we will see, Novacea’s treatment was more likely to kill patients than save them, but that does not matter when it’s all about winning “the game.”

To win the game, of course, one must have allies — preferably miscreants who know a good scheme when they see it. Perhaps that is why Perceptive Advisors, which is an affiliate of Milken crony Lindsay Rosenwald’s biotech empire, invested a large sum in Milken’s Novacea while serving as one of the seven Milken-network hedge funds that bet big against Dendreon.

As you will recall, Perceptive Advisors didn’t just bet big, it also pounded Dendreon by exercising call options, flooding the market with millions upon millions of Dendreon shares. Simultaneously, Milken crony Steve Cohen, whose former top trader was a vice president of Lindsay Rosenwald’s Paramount Capital, flooded the market with at least 1.6 million Dendreon shares.

But it’s not just about winning the game. It’s about the exhilaration of pushing the limits. It’s about being brazen – brazen to the extreme; brazen to point of lunacy – and seeing if you can (ha! ha! ha!) get away with it.

Perhaps that is why Milken’s Prostate Cancer Foundation went to extraordinary lengths (delivering money, organizing conferences, dispatching prominent doctors) to promote a mostly untested prostate cancer treatment – a treatment (Abiraterone) that was ostensibly being developed by Cougar Biotechnology, the company that was controlled until recently by the above-mentioned Lindsay Rosenwald, who is not only the son-in-law of the “king of stock fraud,” but also a former vice chairman of D.H. Blair – a firm whose  president was Michael Milken’s former national sales manager; a firm that was tied to the Mafia and indicted on 173 counts of securities fraud; a firm that was best known for fraudulently pumping and dumping biotech companies that had no real medicine whatsoever.

Yes, it’s all about “the game.”

Perhaps this also explains the strange occurrences that began in the Spring of 2007.

* * * * * * * *

In the weeks after the FDA’s advisory panel meeting on March 29, 2007, there were only three financial analysts on the planet who were giving a “sell” rating to Dendreon’s stock.

The first two you have already met. One was the song-singing Sendek of Lazard research, the outfit run by the former head of research at a subsidiary of TheStreet.com, which was co-founded by Milken crony Marty Peretz, short selling hedge funds, and Jim Cramer, the former hedge fund manager turned “journalist.”

The second was Jonathan Aschoff, the doctor-impersonating fraud who used to work for Sturza’s Institutional Research, a firm that specialized in publishing biased, negative financial research on biotech companies for a network of short sellers that included the likes of Jim Chanos (Sturza’s current employer) and Michael Steinhardt (mentor to Chanos; son of the “biggest Mafia fence in America”; partner of Milken co-conspirator Ivan Boesky; and incubator of Jim Cramer’s hedge fund).

The third financial analyst who was bashing Dendreon in the spring of 2007 was Maged Shenouda of UBS, the investment bank. Shenouda’s arguments against Dendreon matched almost precisely those of Aschoff and the singing Sendek, both of whom we have shown to be part of the Milken network. So it is probably significant that Shenouda’s boss, the president of UBS’s investment banking, was (until March 2007)  Ken Moelis, who had once been a trader for Michael Milken’s operation at Drexel, Burnham, Lambert. Indeed, Moelis had been one of Milken’s most trusted and favored employees.

While this protégé of Milken was president of UBS, the company had become one of the more crooked banks in the world. According to the Department of Justice, for example, UBS “systematically and deliberately” violated U.S. law by recruiting Americans looking to evade taxes. But, of course, it was not ordinary Americans who hid their money at UBS. It was only the wealthiest of people, especially hedge fund managers, who stashed billions upon billions of dollars in secret accounts at UBS, while perhaps taking advantage of the bank’s other “services” as well.

Was one those “services” illegal naked short selling? In 2006, the Louisiana attorney general filed court documents to compel UBS to hand over records that would help answer that question. Specifically, the attorney general suspected that UBS had, along with Refco, processed phantom stock for Rhino Advisors, the hedge fund whose manager became a fugitive from U.S. law, living in Austria, his money undoubtedly stashed in secret bank accounts, after his “unbridled” criminal naked short selling destroyed companies that had been hobbled by fraudulent “death spiral” PIPEs deals, many of which were brokered by Milken crony Carl Icahn’s Ladenburg Thalmann.

In March of 2007, when Dendreon’s prostate cancer treatment appeared to be on the fast track to FDA approval, and a UBS research analyst was trashing Dendreon, another interesting event was unfolding. Specifically, Mitchel Guttenberg, who had sat on an elite 12-member committee that signed off on the contents of UBS’s financial research, had just been arrested by the FBI.

Prior to joining UBS, Guttenberg had not had a distinguished career. He started out in Wisconsin, where regulators determined that he was trading without a proper license. Later, he worked at a second-tier bank called First Albany and put in time at Axiom Capital, a firm that was once censured by the NASD for publishing false financial research on biotech companies. (More recently, one of Axiom’s brokers was charged with systematically defrauding mentally handicapped elderly people).

Moelis, the Milken protégé who was president of UBS, stacked the bank with his cronies, many of them former Milken employees, and had a propensity for hiring and promoting people who were a bit rough around the edges. For example, it would have been Moelis who promoted Guttenberg to the elite committee that signed off of UBS’s financial research.

Soon after joining UBS’s financial research committee, according to the DOJ, Guttenberg began illegally providing inside information about the contents of soon-to-be released UBS research reports to a circle of hedge fund managers and traders. Two of the traders who profited from Guttenberg’s tips worked for a hedge fund called Chelsey Capital. Previously, the SEC had investigated Chelsey Capital and a hedge fund called GLG Partners for allegedly paying investment banks large commissions (bribes) in exchange for privileged access to initial public offerings.

It is clear that GLG Partners (and perhaps, by extension, also Chelsey Capital) is a member of the network of hedge funds that is the subject of this story. Thanks to a lawsuit that Canadian insurer Fairfax Financial filed against SAC Capital (run by Milken crony Steve Cohen, the “most powerful trader on Wall Street”); Kynikos Associates (run by the above-mentioned Jim Chanos, who was featured in Chapter 6 of this story), and other hedge funds in their network, Deep Capture has acquired copies of emails that Jim Chanos sent to GLG Partners. While it is difficult to tell from these emails whether GLG participated in the network’s attack on Fairfax, Chanos certainly communicated with GLG about the status of that attack.

In March, 2007, when Mitchel Guttenberg, the member of UBS’s elite 12-member financial research committee, was arrested, the SEC stated that Guttenberg was at the center of “one of the most pervasive insider trading rings since the days of [Milken co-conspirator] Ivan Boesky….” A few days later, Moelis, the Milken protege, resigned from UBS to start his own investment bank.

A few months after that, French authorities busted another UBS insider trading ring, this one including UBS subsidiary UBS O’Conner; the above-mentioned GLG Partners; and a hedge fund called Meditor Capital. At the time, one of Meditor’s top traders was Andrew Billet, formerly of SAC Capital, the hedge fund run by Milken crony Steve Cohen, who was one of the seven “colorful” traders who held large numbers of put options in Dendreon.

This connection would not be worth mentioning except for the fact that Steve Cohen is known to include former employees in his nationwide trading network, and in 2007, Meditor’s trading tended to run parallel to that of Cohen’s hedge funds. Indeed, Meditor’s biggest share purchases were in biotech companies – Onyx Pharmaceuticals, Vion Pharmaceuticals, Atherogenics, and Cypress Bioscience — that were also targeted by Cohen’s SAC Capital.

Moreover, in April, 2007, right before some strange occurrences were to derail Dendreon, Meditor purchased 1.6 million shares in Novacea, the company whose controlling shareholders (Michael Milken’s ProQuest and Domain Associates) must have known, for reasons that I will describe, that they would make money on their investment in Novacea only in the event that Dendreon’s treatment for prostate cancer failed to go to market.

Aside from Meditor Capital, there was, in the spring of 2007, only one other hedge fund that made a major investment in Milken’s Novacea – a company whose prostate cancer treatment, we will see, had no chance of reaching patients anytime soon. The second hedge fund was Perceptive Advisors, managed by an employee of Paramount Capital, whose vice president was formerly one of Steve Cohen’s top traders.

Perceptive Advisors, we know, was one of the seven “colorful” hedge funds that held large numbers of put options in Dendreon. And Paramount Capital was owned by Lindsay Rosenwald, the Milken crony who controlled Cougar Biotechnology, another Dendreon “competitor” that claimed to have a treatment for prostate cancer, though that treatment had almost no data showing that it could be safely administered to patients.

So we can begin to see a pattern – a pattern that is all the more interesting when you consider the strange occurrences that began in April 2007.

* * * * * * * *

I will get to those strange occurrences in a moment. But first let’s learn a bit more about that first UBS insider trading ring — the one that was busted in March 2007, when a UBS researcher was bashing Dendreon.

In addition to the Chelsey traders, the ring included two other miscreants – David Glass and David Tavdy, both of whom received advance notice of the contents of UBS’s financial research. Tavdy, described as a “scrappy” Russian immigrant, was a close friend and former First Albany co-worker of Mitchel Guttenberg, the fellow who was a member of UBS’s elite financial research committee. Tavdy earned a fortune from his trading, but apparently unsatisfied, he had painted on his expensive, high-speed motor boat the name, “Enough is Never Enough.”

Glass had previously spent most of his career at Sterling Foster, which was one of the first brokerages shut down by the FBI when the bureau began its crackdown on Wall Street outfits believed to be tied to the Mafia. Glass quit his job at Sterling Foster right before the FBI raided the firm, arresting 20 of its brokers. Later, Glass helped a close friend write the script for “Boiler Room,” the successful movie about a brokerage that specialized in ripping off investors.

Glass was the first one busted for his role in the UBS insider trading ring. The FBI promptly strapped him with a wire and dispatched him to record a conversation with a Wall Street greaseball named Larry McKeever, who had said that he was going to expose the UBS insider trading ring to the authorities unless Glass paid him a large sum of money.

In the course of this conversation, Glass mentioned Tavdy and Tavdy’s close friend, Mitchel Guttenberg, whom Milken crony Ken Moelis had promoted to UBS’s financial research committee, putting him in a position to illegally disclose the contents of upcoming UBS research reports.

Specifically, Glass told McKeever that the attempted bribe wasn’t a good idea because Guttenberg and Tavdy might find out about it. Glass was especially careful to warn McKeever about Tavdy. As Glass put it, Tavdy “probably knows the name of Larry McKeever.”

In response, McKeever said of Tavdy: “Listen, Glass, I kid you not—he’s a fucking dead man. I don’t give a fuck if he’s tied into the Russian mob or whatever. I’ll find that cocksucker, mark my words. My lips to your ears. He don’t know my name.”

At this point, McKeever appeared to have had second thoughts about issuing threats to Tavdy, a guy who might be tied to the Russian mob.

McKeever nervously added, “How does he know my name?”

* * * * * * * *

In March 2007, after the FDA advisory panel voted in favor of Provenge, the singing Sendek, the doctor-impersonating Aschoff, and the fellow from UBS’s troubled research shop were the only three financial analysts in the world who were dismissive of Dendreon’s prospects. But it is interesting to see what a determined public relations campaign can accomplish.

Dendreon’s treatment was the first-ever vaccine for cancer. It was the first-ever promising substitute for the ravages of chemo. And it was the first-ever cancer therapy that could target and boost the immune system. Although the data suggested that it did not prevent the inevitable end in some patients, but merely forestalled it, the treatment was truly revolutionary and seemed to have the potential to save a lot of people. So one might have expected some media excitement.

But Dendreon was a small company that did not understand how “the game” worked. The whispering hedge funds, along with their proxies — the song-singing, doctor-impersonating analysts – were more sophisticated. So the press reports on Dendreon were few in number. And most of them featured Sendek, Aschoff, or the UBS fellow voicing their party line that Provenge was “dangerous” – that the data was insufficient, that there were better drugs in the pipeline. And as the days went by we heard more and  more about this strange notion that the Provenge advisory panel had asked the “wrong question” – that the FDA might have to “change the question.”

Dendreon’s enemies repeated their “talking points.” They stayed “on message.” They manufactured the news, and the news was that the FDA just might reject Dendreon’s application. Rarely mentioned was the fact the FDA had never in history rejected a drug for dying patients after its expert advisory panel had voted for approval.

But despite the weird news reports, Dendreon’s stock price continued to soar.

And so, the hedge funds continued to pile on. Call options (such as those exercised by the above-mentioned Perceptive Advisors, which was part of Milken crony Lindsay Rosenwald’s biotech trading empire) were exercised in mass. And millions upon millions of phantom shares continued to flood the market. By April 10, Forbes magazine was reporting that Dendreon, a company that then had a market cap of just under $2 billion, had become one of the top three most heavily traded stocks on Wall Street – beating out Microsoft, Cisco, and Seagate Technologies.

On April 12, Jim Cramer tried to explain away the increase in the stock price. He told CNBC’s audience that they were witnessing a short “squeeze,” – the stock price was soaring as short sellers scrambled to buy shares to cover their positions. Cramer added that he was aware of one hedge fund manager who had failed to buy counterbalancing call options at an effective strike price. This was probably a reference to the above-mentioned Edelman. In any case, Cramer seemed to be saying that it was just a matter of time before the stock price would crash again.

Cramer was right about that. But there was no short “squeeze” – the short sellers were not covering their positions. To the contrary, they were growing their positions — exponentially. On April 4, 2007, around 3 million Dendreon shares were sold short. The next day, the number of shares sold short quadrupled – to 13 million. And more than 10 million shares were sold short every day leading up to April 12.

It is a safe bet that these short sellers knew that something was going to crack Dendreon’s stock price.

And sure enough, on April 13, Dendreon witnessed the first of some singularly strange occurrences.

* * * * * * * *

Late that day – April 13 – a newsletter called The Cancer Letter published a presumably confidential letter that Dr. Howard Scher of the Memorial Sloan-Kettering Cancer Center had written to the Food and Drug Administration. Dr. Scher was one of the 17 doctors who had sat on the FDA’s advisory panel, and his letter — which was addressed to an FDA deputy commissioner and cc’d to then FDA Commissioner Andrew von Eschenbach and an FDA official named Richard Pazdur – argued vehemently that Dendreon’s prostate cancer treatment should not be approved.

This was strange for numerous reasons. For one, it was unprecedented for a doctor to lobby the FDA after an advisory panel had already voted on a treatment. Doctors who are contracted by the FDA to judge a treatment for a life threatening disease voice their opinions during the advisory panel meeting. At the end of the meeting, they are invited to vote on two questions: Is the treatment safe? And, is there “substantial evidence” that the treatment might improve the health of patients? The vote is considered final. When it’s done, the doctors are expected (as we will see) to go home and keep their opinions to themselves.

When Dendreon supporters and prostate cancer advocacy groups–including Care-To-Live, a heroic organization that has done much to publicize Dendreon’s travails–saw Scher’s letter, they asked Francesco Marincola, a doctor who had sat on the Provenge advisory panel, to write his own letter in Dendreon’s defense. Dr. Marincola declined. He said, “As you may well infer…I share many of your opinions. However, I strongly believe that my role as a member of the advisory board is to express my opinion during the meeting [and that] it would be ill advised to influence the FDA decision beyond that point.”

Dr. Marincola added: “If it is true (which I doubt) that some other member of the board contacted the FDA afterwards, it is beyond my control. But my personal opinion is that my credibility as a member of the board will be better preserved if I give my impartial opinion at the time of the meeting and let the FDA do their work afterwards.”

This, said Dr. Marincola, was a matter of preserving the “integrity of the process.”

* * * * * * * *

The second thing strange about Dr. Scher’s missive is that, within days, it ended up in the hands of The Cancer Letter, a publication whose subscribers include a significant number of Wall Street investors. FDA employees are forbidden to discuss the merits of medical products in public, and one big reason is that news of such discussions can profoundly affect stock prices.

The publication of Scher’s letter was reminiscent of an event that had made The Cancer Letter famous in the world of biotech – an event that had established The Cancer Letter’s reputation as an organ of short selling hedge funds. That event was the FDA’s decision in 2001 to deny approval of a cancer drug that had been developed by a biotech company called ImClone.

News of the ImClone decision was made public not by the FDA. Somebody had inside information that the FDA was going to reject ImClone’s cancer treatment, and that somebody leaked the information to The Cancer Letter, which published it with great fanfare. In the days prior to the publication, short selling in ImClone increased dramatically. Meanwhile, ImClone executives and their friends offloaded their shares.

One of those friends was Martha Stewart, who was then known for her all-American, home lifestyle products. Stewart was accused of trading on her inside information about the FDA’s ImClone decision. Ultimately, she went to jail for obstructing the DOJ’s investigation into her actions.

Others were more fortunate. A Congressional investigation into the ImClone affair produced phone records that showed who had called ImClone in the days before the FDA’s decision was made public by The Cancer Letter. These records show that on December 27, 2001, ImClone received phone calls from three hedge fund managers. Presumably, these three hedge fund managers had gotten wind of the imminent story in The Cancer Letter, and were calling to discuss.

It should surprise nobody that these hedge fund managers were all members of a particularly colorful Wall Street network. One of the three hedge funds that called ImClone that day was Ziff Brothers Investments. That, remember, is the fund that incubated the trading empire of Jim Chanos, who is now under investigation for trading ahead of reports issued by financial research firm Morgan Keegan. Dirk Ziff, as you will recall, was introduced to Chanos by Michael Steinhardt (Milken crony; Boesky partner; son of “the biggest Mafia fence in America”) and by Ziff’s Harvard Professor, Marty Peretz (Steinhardt partner; Boesky crony; Milken pal).

The second hedge fund that called ImClone that day was SAC Capital, run by Steve Cohen, the Milken crony who is “the most powerful trader on the Street.” As you will recall, Cohen is a Chanos collaborator (both received and communicated about advanced copies of the same Morgan Keegan reports, and they have frequently employed the same tactics, and the same thugs, to attack the same companies). As you will also recall, previously Cohen was the top earner at Gruntal & Company, a Mafia-linked brokerage that owed its existence to Milken’s junk bond finance. While there, he was reportedly investigated for trading on inside information provided to him by Milken’s people at Drexel Burnham.

The third fund manager who called ImClone that day was Carl Icahn, the Milken crony who founded the options department at the Mafia-linked Gruntal & Company before becoming a billionaire by brokering “death spiral” PIPEs financing in cahoots with criminal naked short sellers, and by blackmailing companies with finance from Milken and the Mafia-connected Zev Wolfson.

It is difficult to know whether these three fund managers acted on the secret ImClone information that The Cancer Letter made public soon after they called ImClone. We don’t know because the SEC does not require hedge funds to disclose their short positions, as they do their long holdings.

Short positions are, after all, a big secret.

* * * * * * * *

We do know that in the days leading up to The Cancer Letter’s publication of Dr. Scher’s letter, short selling of Dendreon’s stock increased dramatically. Meanwhile, criminal naked short sellers continued to churn out phantom stock. SEC data shows that at least 9 million shares had failed to deliver on April 10. There were similar numbers the following day, and on the day after that, more than 10 million shares had failed to deliver. On April 10, Dendreon’s stock was trading at its high of around $25.  By April 12, the day before The Cancer Letter’s “scoop,” the stock had already nosedived to around $18.

This trading was strange. And as mentioned, Dr. Scher’s letter was strange.

It wasn’t just that Dr. Scher’s lobbying of the FDA was unprecedented and an affront to the “integrity” of the drug approval process. And it was not just that his letter to the FDA quickly appeared in The Cancer Letter (just as The Cancer letter had made public the FDA’s decision about ImClone). And it was not just that short selling hedge funds clearly knew that Dr. Scher’s letter was in the works.

It was that Dr. Scher’s letter precisely echoed the party line that had been put out by the whispering hedge funds, the song-singing Sendek, the UBS researcher, and the doctor-impersonating Jonathan Aschoff.

Like the Wall Street analysts, Dr. Scher said that Provenge had failed to meet its “primary end-points in two clinical trials” — that the data was not absolute “proof” that Provenge worked. And just as Aschoff had told journalists that it would be “dangerous” to approve Dendreon, Dr. Scher argued that the FDA would be somehow setting a dangerous precedent by approving a new standard of treatment.

Dr. Scher’s letter was also reminiscent of that Dendreon conference call, when the singing Sendek asked, over and over, whether the advisory panel had asked the “right question” and whether the FDA might have to “change the question.” Now Dr. Scher, too, was suggesting that the advisory panel had somehow been a sham – that it had “changed the question” regarding the efficacy of Provenge. Since the panel had voted on the wrong “question,” Scher argued, the panel’s overwhelming endorsement of Provenge should be disregarded.

It seemed that Dr. Scher, who is one of the most prominent cancer doctors in America, was parroting the medical wisdom of Wall Street goons. Either that, or the goons were parroting Dr. Scher. Whichever the case, and whatever their motivations, Wall Street miscreants and a prominent FDA-contracted doctor were now working in parallel  to quash a promising treatment for prostate cancer.

* * * * * * * *

Here’s another factoid about Michael Milken’s ProQuest Investments. As I mentioned, ProQuest whitewashed its website, so that it no longer identifies the directors of its advisory board. Screenshots from the past allowed me, in a previous section of this story, to tell you who most of those directors were as of Spring, 2007. But there is one ProQuest director whom I have not yet identified by name.

This ProQuest director is a doctor. And his name is Howard Scher.

That is correct: Dr. Howard Scher, who sat on the advisory panel that voted on the merits of Dendreon’s prostate cancer treatment, and then trashed Dendreon’s treatment in a letter to the FDA (an unprecedented lobbying effort after an advisory panel had voted), was also a director of Michael Milken’s ProQuest Investments. In fact, Dr. Scher was not just a director of ProQuest, he was also an executive of the fund, which likely means he stood to profit from its investments.

MilkenScher Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 8 of 15)
(l to r) Dr. David Solit, Tommy Lasorda, Dr. Howard Soule, Dr. Howard Scher and Michael Milken

Dr. Scher was, moreover, the  chairman of the “Therapeutic Consortium” at Michael Milken’s Prostate Cancer Foundation. He also received unknown amounts of money as the lead investigator of Asentar, the prostate cancer treatment that was being developed by Novacea, whose controlling investors were Milken’s ProQuest Investments and its affiliate, Domain Associates. Meanwhile, Dr. Scher was a paid member of the advisory board of Cougar Biotechnology, the Dendreon competitor that was controlled by Milken crony Lindsay Rosenwald, formerly of the Mafia-connected pump-and-dump stock fraud shop D.H. Blair.

It is bad enough that the world’s foremost financial criminal, Michael Milken, stood to profit from the demise of a promising prostate cancer treatment. It is disconcerting to know that Lindsay Rosenwald, a Mafia-connected Milken-crony with a record of destroying real companies and creating fake companies, is among the biggest biotech players in the nation – a player who controls 8% of the world’s pharmaceutical firms. It is unsettling to know that this crony and those seven Milken-network hedge funds with large numbers of put options were no doubt intent on seeing Dendreon fail.

But somehow, the saddest news of all is that Dr. Scher took unprecedented steps to derail a competing treatment that could have extended the lives of a great many men. Dr. Scher is one of the most prominent physicians in America. He is considered one of the world’s foremost experts on prostate cancer. His opinions matter. His advice is heeded. It is likely that at some point Dr. Scher believed that other treatments were superior to Dendreon’s, but somewhere along the line, he seems, at least to some extent, to have let his motives become mixed in with his incentives.

Given his connections to Milken’s ProQuest Investments, to Novacea (the company controlled by ProQuest and an affiliate) and to Dendreon’s other competitors (such as Cougar Biotechnology), Dr. Scher probably should not have sat on the FDA advisory panel that voted on whether Dendreon should be approved. He certainly should not have been lobbying the FDA. He should not have trashed Dendreon’s treatment, for as he must have known, due to these other relationships, he could no longer claim to be an objective observer.

He had what they call…well, in more innocent times, they called it a “conflict of interest”

* * * * * * * *

Maybe we should not be too hard on Dr. Scher. I am reminded of a story that I once reported for Time Magazine in Asia, about a network of Mafia-connected stock brokerages that had set up shop in Bangkok, Thailand in order to avoid the FBI “Mob on Wall Street” crackdown that led to Operation Uptick in 2000. The owners of the brokerages were bad guys (there was a point where they nearly began murdering each other in the streets of Bangkok), but they had become quite prominent in some business circles. They were also fantastically generous “philanthropists.”

The bad guys gave especially large sums of money to a priest who was famous for the wonderful work he had done to help people in Bangkok’s most dire slums. The priest was, of course, grateful for the contributions, and he used every opportunity to speak highly of his benefactors. Even when the bad guys were charged with crimes – even when they became fugitives from the law – the priest spoke quite strongly in their defense. He simply refused to acknowledge that the criminals were anything other than “prominent” businessmen and “prominent” philanthropists.

The priest was not a bad man. He was as good as they come. But he had received so much money – and he had deployed this money to so much good purpose – that he was inclined to continue working with the criminals.

The famous priest should have condemned the miscreants. He was an important voice of moral authority. But by the wonders of human psychology, he possibly believed, quite genuinely, that the criminals had done no wrong.  We call this phenomenon “deep capture.” The priest had been “captured” by the criminals. His judgment was clouded.

Perhaps Dr. Scher was a priest of the medical community. Michael Milken’s Prostate Cancer Foundation had donated tens of  millions of dollars to Dr. Scher’s hospital, Memorial Sloan-Kettering (a hospital, it should be noted, by way of disclosure, that has also received significant donations from the family of Deep Capture reporter Patrick Byrne, whose cancer was successfully treated there). With support from the Prostate Cancer Foundation, Dr. Scher and Memorial Sloan have been able to continue their research into experimental treatments that perhaps will one day help patients.

No doubt, Dr. Scher was grateful for this generosity. No doubt, he was earnest about his Milken-financed investigations and believed that he was contributing to the advancement of science. Meanwhile, Milken and his foundation had become quite “prominent” players in the fight against prostate cancer. Indeed, it is fair to say that Milken, more than anyone, had come to dominate the prostate cancer establishment. Nobody had more influence. So, in Dr. Scher’s view, it perhaps made perfect sense to collaborate with this criminal. As his collaboration grew, he perhaps became inextricably tied to the work – not just financially, but also emotionally.

The phenomenon of “deep capture” is indeed pervasive. And it is pervasive because it can swallow anyone – even those with the best of intentions.

That said, Dr. Scher’s letter to the FDA was not merely the work of an earnest but “captured” physician. As we will see, it was conniving. It trashed Dendreon in a manner that was patently dishonest, and exaggerated the promise of a treatment (the one under development at Milken’s Novacea) that would soon be shown to be ineffective.

Unwittingly or not, Dr. Scher aided the machinations of the criminal Michael Milken. And as we will see, there are good reasons to suspect that those machinations were not about philanthropy or fighting cancer, or even about  investing in companies that had genuine value.

The machinations were about destroying a good company so that Milken and a network of hedge funds could make a big bundle of money.

* * * * * * * *

To be continued…Click here for Chapter 9.

If this article concerns you, and you wish to help, then:
1) email it to a dozen friends;
2) go here for additional suggestions: “So You Say You Want a Revolution?

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 7 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 7 of 15)



What follows is PART 7 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

Where we left off, CNBC’s Jim Cramer had declared Dendreon to be a “battleground stock,” and we had learned about the ties that bind certain financial analysts, hedge fund managers and journalists, including Cramer.We had also learned that a great many people in this network are tied to the famous criminal Michael Milken or his close associates.

We had learned further that seven hedge fund managers in this network were among the only people on the planet known to be holding large bets against Dendreon as of March 31, 2007 – which was right at the time when criminals were flooding the market with millions of phantom Dendreon shares; and right after Dendreon had received the fantastic news that an FDA expert advisory panel had endorsed the company’s prostate cancer treatment; and right before Dendreon was to be derailed by some singularly strange occurrences.

I will describe those strange occurrences in due course. I will also describe how those strange occurrences coincide with the “philanthropy” of Michael Milken.  But first let us meet another dubious financial analyst, and then let us begin to understand how Michael Milken himself stood to profit financially from the demise of Dendreon, the only company with a viable new treatment for prostate cancer.

* * * * * * * *

It is easy for executives of public companies to know that they are “battleground” targets of the Milken network because the members of this network have quite distinctive characteristics. Whether they be journalists tied to Cramer, financial analysts, or hedge fund managers, they are unusual among financial professionals in that they take overt pride in their thuggish manner.

They let it be known that the executives are in their sights, and sometimes issue outright threats. They let on that they have inside information, influence, and power – and that unforeseen calamities can happen.  (This may have what economists call a “signaling effect,” dissuading potential investors from purchasing a stock, even if they believe in the fundamentals of the company.)

Often members of this network will join companies’ quarterly conference calls, and take turns firing off insinuating and preposterous questions in staccato fashion, giving the targets of their interrogations no opportunity to formulate reasonable replies.

So it was in March of 2007, when Dendreon held a conference call to discuss the FDA advisory panel’s recent vote in favor of Provenge. Nearly every analyst on the call was cheered by the news that the prostate cancer treatment would reach patients. Most of these analysts were advising clients that Dendreon’s stock would hit at least $20 (compared to the $1.50 target set by the doctor-impersonating financial analyst, Jonathan Aschoff).

Here is a representative sample of analysts who participated in the conference call, along with quotations showing how they greeted Dendreon CEO Mitchell Gold, and how they signed off.

Charles Duncan – JMP Securities

Greeting: “A big congratulations!”

Singing off: “Congrats Again.”

David Miller – Biotech Stock Research

Greeting: “Good evening. Warm congratulations.”

Signing off: “Congratulations to everybody on the team.”

Mark Monane – Needham & Company

Greeting: “Good day and congratulations to all.”

Signing off: “Congratulations once again.”

William Ho – Bank of America

Greeting: “Congratulations”

Signing off: “Okay”

Paul Latta – McAdams, Wright & Regan

Greeting: “Good evening & congratulations, Mitch, a great accomplishment for you and your team.”

Singing off: “Congratulations again.”

But then a financial analyst named Elliot Favus appeared on the conference call. Favus worked for Lazard Capital, and announced that he was sitting in for Joel Sendek, who usually covered Dendreon for Lazard. Favus launched into a series of aggressive questions, suggesting that the FDA advisory panel had been a sham, and that the FDA would not approve Dendreon’s prostate cancer treatment.

Then Joel Sendek, Elliot’s colleague at Lazard, got on the call and initiated a similar interrogation. He kept asking whether the FDA advisory panel had asked the “right question” about the effectiveness of Provenge. When Dendreon’s CEO tried to answer, Sendek interrupted and asked again – Did the panel ask the “right question”?  The baffled answer was, “Yes.”  But Sendek kept asking. Do you think it was the “right question”? Do you think the FDA will have to “change the question”?

This was very strange. The FDA panel asked two questions. Is Provenge safe? And, is there “substantial evidence” of efficacy?  Those are the two questions that advisory panels always ask. Federal regulations require them to ask those questions.

It was hard to tell what Sendek was up to. Change the question? Did Sendek believe that the FDA was somehow going to alter its regulatory standards? Did he have information that the FDA might not approve Provenge – never mind that the agency had followed its advisory panels’ recommendations in 97% of cases, and had never in history rejected a panel-approved drug destined for dying patients?

And who was this Joel Sendek?

* * * * * * * *

sendek.03 Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 7 of 15)
Actual Joel Sendek publicity photo

Sendek is an analyst for Lazard research. He is famous on Wall Street for spending his evenings calling Wall Street investors and shareholders, and literally singing songs into their voicemail. Usually, these songs celebrate the demise of some biotech company or medicine. For example, when Sendek decided that an anemia drug called Erythropoietin wasn’t going to make it to market (or to patients suffering from anemia), he gleefully called everyone he knew on Wall Street and began singing (to the tune of American Pie):

Bye-bye, Erythropoietin pie.

Drove my growth rate with the pipeline,

But the pipeline went dry.

I don’t know what song Sendek sings about Dendreon’s prostate cancer medicine, but his reports on Dendreon have been marked by a similarly cheerful pessimism. Same goes for the reports on Dendreon published by Elliot Favus, who, until recently, worked with Sendek at Lazard. In the long two years that followed that conference call in March 2007, Lazard’s reports have consistently predicted (in tones that seemed almost hopeful) that Dendreon’s treatment would fail to reach patients who were dying of prostate cancer.

In April 2009, a few days before a Yahoo! message board poster predicted, almost to the minute, the“BEAR RAID” that shattered Dendreon’s stock price by 65% in 75 seconds, Lazard put out a statement that said that an “investigator in the current Provenge study” had concluded that Dendreon’s treatment did not work. This was terrible news – assuming that the “investigator” was somebody actually participating in the “current Provenge study” or any other scientific study of Dendreon’s treatment.

But it turned out that Lazard had made “a mistake.”

When Dendreon supporters started hollering that there was no such “investigator,” Lazard changed the statement to read that an “expert” had concluded that Provenge does not work. When Lazard was challenged to produce such an expert, it changed the message again. Now the expert wasn’t exactly saying that Dendreon’s prostate cancer treatment does not work. Instead, it was that Provenge was “mentioned cautiously” by this particular “expert,” who remained anonymous.

If you can spot the similarity between this “mistake” and the “mistakes” of CNBC’s Jim Cramer, it will not surprise you to learn that Lazard’s research operation was then run by a guy named Paul Noglows. Prior to joining Lazard, Noglows was the director of research at IRG Research, an outfit owned by Jim Cramer’s financial news and research company, TheStreet.com.

Elliot Favus, the Lazard analyst who teamed up with the singing Sendek to trash Dendreon, later resigned from that job. Then he went to work for Och-Ziff Investment Management, a hedge fund managed by Dirk Ziff.

As you will recall, Ziff was the guy who helped Jim Chanos (host to Ashlee Dupre, hooker of Jim Cramer’s best friend Eliot Spitzer) start his hedge fund empire – an empire that now employs Evan Sturza, the fellow who used to be in the business of publishing research that predicted, with similar glee, the demise of medicines developed by companies that were under attack by Michael Steinhardt (Cramer’s former business partner; mentor to Chanos) and other cronies of Michael Milken and Ivan Boesky.

Ziff’, remember, was also the fellow who improperly received–along with Chanos, Steve Cohen and others in their network, advanced copies of biased financial research published by Morgan Keegan. And, of course, Chanos met Ziff through Michael Steinhardt and Marty Peretz, who was Ziff’s Harvard professor;  a close friend of Boesky; an ardent defender of Milken; a key limited partner, along with Boesky, in Michael Steinhardt’s hedge fund; and the co-founder, along with Cramer, of TheStreet.com.

Study the world of abusive short selling for three years, as I have, and you will see that these relationships matter. You will see how these people work together. And you will see that the most egregious cases of market skulduggery – the serious damage to public companies done by journalists and analysts through these repeated and precisely-crafted “mistakes”; the hired thugs; the threats; the over-the-top gloom (sung gleefully); the sudden bankruptcies, the orchestrated calamities, the endless litany of strange occurrences – an alarming amount of it can be traced to the same cast of beady-eyed, Milken-loving mischief-makers.

* * * * * * * *

As you may have gathered by now, Provenge has yet to be approved by the FDA. Despite evidence that it decreases prostate cancer mortality by 38%, the treatment has yet to be administered to patients, 60,000 of whom have died in the two years since the FDA’s advisory panel voted in Dendreon’s favor.

What strange occurrences have contributed to this outcome? What calamity was awaiting Dendreon as these seven “colorful” hedge fund managers stocked up on put options while naked short sellers flooded the market with at least ten million phantom shares?

Before I answer those questions, we ought to get to know some things about the “philanthropy” of Michael Milken and a firm called ProQuest Investments.

In 1993, Milken founded the Prostate Cancer Foundation, with a stated mission to promote advancements in the treatment of prostate cancer.

In 1998, ProQuest Investments opened for business with the specifically stated mission to invest in companies developing treatments for prostate cancer.

Ostensibly, ProQuest was founded by two men – Jay Moorin and Jeremy Goldberg. But the man who is really behind ProQuest Investments is Michael Milken. Industry reports suggest that Milken is the firm’s rainmaker. It was Milken who delivered  most of ProQuest’s early capital. And it is Milken who brings ProQuest’s deals to the table.

One of those deals was a company called Novacea, now known as Transcept Pharmaceuticals. For a long while, the controlling shareholders in Novacea were ProQuest Investments and a fund called Domain Associates. I believe it is safe to assume that ProQuest and Domain are affiliated, given that the two funds not only invest in the same companies, but actually share the same address.

Industry reports state that Domain was the “mentor” to Proquest, and an investor in the fund. One report states that the two funds “plot strategy” together.  Thus, it would be more accurate to say that the controlling shareholders in Novacea were first, ProQuest Investments, and second, ProQuest Investments (acting through Domain Associates).

But ProQuest and Domain are not like most biotech investment firms, which scout out companies with promising treatments and invest capital in them. Rather, ProQuest and Domain sometimes invest capital in  themselves. For example, Novacea was founded by Eckard Weber, who works as an executive and partner of Domain Associates. One day, there was no such thing as Novacea. The next day ProQuest and Domain had invested in a company called Novacea, which ostensibly had a promising treatment for prostate cancer.

This alone should have set off alarm bells. But for a long while, the media and others believed that Novacea was a serious – indeed, the most serious – competitor to Dendreon. An achievement for Dendreon was considered to be a set-back for Novacea. By the same token, a calamity for Dendreon had the potential to be a major boon to Novacea’s shareholders.

In fact, Dendreon suffered just such a calamity. And this calamity did indeed reap a large fortune for Michael Milken’s ProQuest Investments and Domain Associates.

But ProQuest and Domain are no longer shareholders in Novacea.

That is on account of some strange occurrences that I must describe in more detail.

* * * * * * * *

First, though, it is necessary for us to continue learning more about Michael Milken’s prostate cancer business,  ProQuest Investments, and Michael Milken’s “philanthropic” outfit, the Prostate Cancer Foundation.

As we know, ProQuest Investments was ostensibly founded by two men – Jeremy Goldberg and Jay Moorin.

Prior to becoming the ostensible co-founder of ProQuest (Michael Milken’s investment fund for companies that supposedly have treatments for prostate cancer) Moorin’s most significant achievement had been to serve as CEO of Magainin Pharmaceuticals, a company that later changed its name to Genaera Corporation. In many transactions, the financial advisor to this company was Paramount Capital.

Paramount Capital, as you will recall, is owned by Lindsay Rosenwald, the fellow who used to help his father-in-law (the “king of stock fraud”) run D.H. Blair, which was the dirtiest Mafia-affiliated brokerage on Wall Street – the same brokerage whose president had been Michael Milken’s national sales manager, and whose business model had been to underwrite phony biotech companies, then pump and dump their stocks.

As you will recall, Paramount’s vice president was once a top trader at SAC Capital, the hedge fund run by Milken crony Steve Cohen, who became the “most powerful trader on the Street” largely by maniacally maintaining relationships with his former colleagues. You will also recall that Cohen and Paramount employee Joseph Edelman were among those seven “colorful” hedge fund managers who held large numbers of put options in Dendreon as of March 2007.

At the risk of being repetitive, I will also remind you that Lindsay Rosenwald, the fraud king’s son-in-law, controlled Cougar Biotechnology, a company whose scientific advisory board included four doctors affiliated with Milken’s Prostate Cancer Foundation.

When Dendreon became a “battleground stock,” Dendreon had no more than three “serious” competitors. One was Milken crony Rosenwald’s Cougar Biotechnology. The other was Novacea, controlled by Milken’s ProQuest Investments. The third was a company called Cell Genesys, which I will return to in an upcoming chapter.

Magainin/Genaera, the company that was run by ProQuest’s ostensible founder, Jay Moorin, had lots of big ideas. For example, it claimed to have developed a way to treat foot ulcers with a substance extracted from the African clawed frog. It also claimed to have discovered a treatment for cancer. This treatment was apparently derived from the livers of tropical dogfish sharks.

Indeed, a great many of Magainin/Genaera’s supposed treatments were derived from exotic wildlife. And many of these treatments were heralded in press releases that suggested that regulatory approval was just around the corner.

Sometimes, the company announced that its treatments had already gained approval – albeit in exotic locales. Genaera’s lung cancer vaccine “was approved Jun 12 by the Cuban regulatory authorities…” noted one of Genaera’s optimistic press releases. Presumably, Cubans are now free of lung cancer.

For three decades, these press releases appeared. Many of them sent Magainin/Genaera’s stock into orbit. Then the stock would sink. After that, there would be another press release and the stock would be back in the stratosphere.

But in three decades, Genaera never brought a treatment to market. In fact, it never had a treatment approved by the FDA.

Three full decades. Countless potions and serums derived from all manner of critter and jungle beast. A stupendous salary for the CEO, and fantastic profits for anyone who spent those 30 years riding the volatility of Magainin/Genaera’s stock. But not a single treatment was brought to market.

In June 2009, Genaera announced that it was going out of business.

* * * * * * * *

Jeremy Goldberg, the other ostensible founder of Milken’s ProQuest Investments, was previously best known for his service as the founding CEO of a company called Versicor, which purported to make anti-viral medicines.

Among Versicor’s biggest early investors was Healthcare Ventures, a fund that was founded by two former Johnson & Johnson executives. It seems that a preponderance of Heathcare Venture’s principals previously worked for Luekosite, a biotech firm founded by Marty Peretz, the Boesky and Michael Steinhardt crony who launched TheStreet.com with Jim Cramer.

Another early investor in Versicor was Schroder Venture Management, a unit of the same company that runs Schroder Wertheim, which was the principal clearing firm for Euro-Atlantic, a Mafia-run brokerage that the Feds shut down in the late 1990s.

But Versicor’s most important investor was a biotech company called Sepracor, which markets Lunestra, the sleeping pill. Sepracor’s chairman, Timothy J. Barberich, was also a major investor in Versicor. Barberich served as Versicor’s founding chairman, while Goldberg served as Versico’s founding CEO. This was the Jeremy Goldberg who later founded Milken’s ProQuest Investments.

So Barberich was chair of Sepracor (a company that markets sleeping pills), and founding chairman of Versicor (which has yet to produce any drugs fit for human consumption). Curiously, Barberich also bankrolled Atlantic Casino Cruises, a gambling outfit that was being set up by a businessman named Adam Kidan and an alleged mobster named Anthony Moscatiello.

Moscatiello, who travels in an armor-plated Mercedes, has been pegged by the government as being the top bookkeeper to the Gambino Mafia family. As the story goes, Kidan masterminded Atlantic Casino Cruises. Moscatiello set the company up. And Barberich was the principal financier of the project.

Unfortunately, the project never really got off the ground. Soon after Barberich invested his money, Kidan, the businessman, entered into a deal to buy another casino, SunCruz, from a fellow named Konstantinos “Gus” Boulis. In due course, Boulis accused Kidan of financial improprieties in the deal.

Not long after that, Boulis was shot in the head – execution style.

And Moscatiello was arrested.

* * * * * * * *

To be continued…Click here for Chapter 8.

If this article concerns you, and you wish to help, then:
1) email it to a dozen friends;
2) go here for additional suggestions: “So You Say You Want a Revolution?

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 6 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 6 of 15)



What follows is PART 6 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

Where we left off, we had learned that CNBC’s Jim Cramer had declared Dendreon to be a “battleground stock.” And we had learned that Dendreon subsequently came under attack by criminal naked short sellers, right at the time that its promising treatment for prostate cancer had been endorsed by an FDA expert advisory panel, and right before that treatment was to be derailed by some strange occurrences.

While it is impossible to know who was responsible for the illegal naked short selling (the SEC keeps that a big secret), we know that the people who orchestrated those strange occurrences (which I will describe in due course) and at least seven of the ten hedge fund managers who held large numbers of Dendreon put options (bets against the company) are tied to Michael Milken, the famous criminal who is now considered to be a “prominent philanthropist” with a special focus on prostate cancer.

Now we learn a bit more about this network and the attack on Dendreon, a company with a promising treatment for prostate cancer…

* * * * * * * *

When the FDA’s advisory panel voted in favor of Provenge, most Wall Street research analysts were predicting a bright future for Dendreon. But as naked short sellers piled on with ever increasing gusto, hedge fund managers continued to whisper in reporters’ ears. And two Wall Street analysts did more than whisper – they shouted, day after day, that Dendreon’s treatment for prostate cancer was doomed.

One of these analysts is named Jonathan Aschoff, and he works for a financial research outfit called Brean Murray Carret & Co.  The day after the advisory panel vote, in an interview with Reuters, Aschoff made the long-shot prediction that the FDA would not approve Provenge, but would instead ask Dendreon to supply additional data showing that the treatment was safe and effective–a process that could take years. Soon after, Aschoff told other media outlets that the FDA would set a “dangerous double standard” by approving Provenge because the treatment “did not meet its primary goal in two Phase III trials.”

During the first days of April 2007, Aschoff was everywhere, continuously repeating this notion that the FDA would set a “dangerous double standard” by approving Provenge.  On April 9, Aschoff reiterated his “sell” rating for Dendreon, setting a target for the stock at a mere $1.50, which implied that the stock would lose more than 90 percent of its value by the end of the year. Reuters, Associated Press, CNBC and other media dutifully reported Aschoff’s comments as though they shed  light on the merits of Dendreon’s prostate cancer treatment.

Aschoff’s performance raises a few basic questions. The first is, how did a Wall Street analyst know that it would be “dangerous” to approve a medical treatment? It is an odd day, indeed, when the media turns to Wall Street for wisdom on matters of science and health.

The second question is, why was Aschoff so confident that the FDA would not approve Provenge? Given that the FDA had followed its advisory panels’ decisions in 97% of cases, and in 100% of cases involving drugs for dying patients, Aschoff’s prediction seemed rather far out. What did he know that the rest of the world did not know?

The third question is, who is Jonathan Aschoff?

* * * * * * * *

In 2003 – back when journalists still occasionally investigated stories, rather than parroting whatever hedge funds and Wall Street analysts whispered in their ears – The Wall Street Journal won a Pulitzer Prize for a story that nailed Jonathan Aschoff for being a fraud.

According to the Journal, Aschoff often impersonated doctors in order to acquire inside information on the status of drug trials underway at his target companies. A certain Dr. Cunningham, who worked at a cancer center in Dallas, told the Journal that he initially believed that Aschoff was a doctor. But he discovered that he was dealing with a fraud when he mentioned to Aschoff that an experimental treatment had caused some reduction of the “lymphadenopathy.”

“What’s that?” asked Aschoff.  He didn’t have a clue, even though “lymphadenopathy” is a  common medical term. It means, “swollen lymph nodes.”

Nonetheless, some years later, the Associated Press, Reuters, and other media outfits were willing to believe that Aschoff knew enough about medicine to be quoted as a reliable source – a source who had, for some reason, concluded that Dendreon’s treatment for prostate cancer was “dangerous.”

What reason did Aschoff have for reaching that conclusion?

* * * * * * * *

One more question: Which hedge funds were paying Aschoff’s bills?

There is one particular network of hedge fund managers that is known to pay “independent” financial research shops to publish biased or false negative reports on companies that they are selling short.

Former employees of “independent” financial research firm Gradient Analytics have provided sworn affidavits that hedge fund manager David Rocker–once the largest outside shareholder of TheStreet.com; former employee of  Milken-Boesky crony Michael Steinhardt (who is the son of “the biggest Mafia fence in America) and Steve Cohen–now “the most powerful trader on Wall Street;” reportedly once investigated by the SEC for trading on inside information provided to him by Milken’s shop Drexel Burnham–heavily influenced, edited, dictated, and in some cases actually wrote Gradient’s false, negative research about public companies. That means, of course, that Cohen and Rocker had copies of “Gradient’s” research before it was published, which is also highly improper.

And emails acquired by Deep Capture show that Cohen and hedge fund manager Jim Chanos, among others in their network, received and traded ahead of biased reports published by a research outfit called Morgan Keegan. After Deep Capture reporter Judd Bagley broke this story, the SEC began (but will probably never conclude) an investigation into the matter.

Were hedge funds in this network dictating Aschoff’s research, too? I don’t know the answer to that question, but it is worth noting that after the SEC sanctioned Aschoff for impersonating doctors, he went to work for an outfit called Sturza’s Institutional Research, which was owned by a fellow named Evan Sturza.

The SEC has launched (but of course never completed) multiple investigations of Sturza’s companies, which catered to a particular network of short sellers by publishing negative commentary on biotech companies. For example, in 1996, the SEC began (but has never completed) an investigation into whether Sturza conspired with the above-mentioned Michael Steinhardt and a firm called Gilford Securities to take down the stock of a biotech company called Organogenesis.

In the 1980s, Gilford Securities employed Jim Chanos (the above-mentioned fellow who is now under SEC investigation for trading ahead of biased research reports). Chanos manages a few hedge funds, the most famous of which is called Kynikos Associates. He is also the head of the short seller lobby in Washington, and a much favored source of information for the New York financial press.

In 1985 – back when Chanos was still at Gilford; back when journalists did investigations rather than parrot whatever Jim Chanos whispered in their ears – way back then is when The Wall Street Journal published a front page story about a “network” of short sellers said to include Jim Chanos and Michael Steinhardt. The story suggested that this network destroyed public companies for profit and described some of the more egregious tactics – espionage; impersonating journalists to get inside information; conspiring to cut off companies’ access to credit; spreading dubious information – that were employed by Chanos and others in his network.

At the time, Chanos made some effort to publicly distance himself from Michael Milken. And he recently told one reporter that lawyers threatened him in the 1980s because he was selling short companies that had been financed by Milken’s junk bonds. However, the truth is that Chanos’s short selling in the 1980s tended to support Milken’s machinations, and in later years Chanos remained very much a part of the old Milken network.

Chanos got his big break in the 1980s by short selling and ultimately destroying a company called Baldwin United. As part of this effort, Chanos and his colleagues at Gilford Securities went so far as to meet with Baldwin United’s bankers, and (through all manner of horror stories) convinced the bankers to cut off Baldwin’s access to credit. Soon enough, the company went bankrupt, and Michael Milken quickly got himself hired as advisor to the bankruptcy.

According to a well-known businessman who was involved in the bankruptcy proceedings, Milken abused his advisory position, handing out confidential information to his network, which ended up owning much of Baldwin’s assets.

As the story goes, Chanos’s take down of Baldwin impressed Michael Steinhardt (the short-seller whose father was the “biggest Mafia fence in America”) and Steinhardt introduced Chanos to his key limited partners – including Ivan Boesky (later indicted for manipulating stocks with Milken) and Marty Peretz (a Milken and Boesky crony who would later co-found TheStreet.com, along with Boesky crony Jim Cramer and a few hedge funds in this network).

Peretz, an aristocrat who has long been a part-time professor at Harvard, introduced Chanos to one of his former students, Dirk Ziff, who manages a hedge fund called Ziff Brothers Investments. The emails cited above show that Ziff Brothers, like Chanos and Steve Cohen, was receiving advance copies of those Morgan Keegan reports.

Dirk Ziff is part of the network of which I write. Indeed, Chanos launched his first hedge fund out of Dirk Ziff’s offices. This was a few years after Chanos left his position at Gilford Securities, which had a few key clients, one of whom was Michael Steinhardt, son of “the biggest Mafia fence in America.”

In the 1990s, five Gilford Securities traders–Chester Chicosky, Todd M. Nejaime, Lawrence Choiniere, Kevin P. Radigan, and William P. Burke – were arrested as part of Operation Uptick, the biggest Mafia bust in FBI history. Although some of these traders had left Gilford by the time they were indicted, they were charged with crimes allegedly committed while they were still working for Gilford. Specifically, the Gilford traders were charged with accepting bribes from a Mob-run brokerage called DMN Capital, and for helping to manipulate stocks with a cast of characters that included ten Mafia soldiers and a former New York police detective.

I asked H. Robert Holmes, who was Chanos’s boss at Gilford, whether he had any comment on the  Mafia’s infiltration of his firm. He said, “I don’t know what you’re talking about? This is bullshit.” He also said he was completely unaware that any Gilford traders had been arrested for accepting bribes and manipulating stocks with a large cast of Mafia goons and Mafia associates. That is, he claimed to be unaware of an event in his company that had been vigorously publicized by the FBI and the SEC.

By the time of Operation Uptick, of course, Chanos was no longer with Gilford. He was then a “prominent investor” – a member of the world’s most powerful network of financial operators, a network whose members are portrayed by the press as geniuses and heroes, never mind that this is the very network that has been destroying companies since 1980s – the very network that is (as should by now be apparent) comprised of the criminal mastermind Michael Milken and his Mafia-connected cronies.

As a member of this network, Chanos is, of course, on close terms with Jim Cramer, the CNBC personality who once planned to run his hedge fund out of Milken co-conspirator Ivan Boesky’s offices. It was owing to Cramer that Chanos became the largest donor to the political campaigns of New York Governor Eliot Spitzer, who was Cramer’s best friend and former college roommate. When Spitzer was caught with a hooker and forced to resign, it emerged that the hooker, “Ashlee Dupre”, had been living rent-free in Chanos’s beachside villa. Ashlee called Chanos “Uncle Jim.”

I tell you all this only to show the relationships that bind some particularly destructive short sellers and miscreants. It is this network that attacked the big banks last year, helping trigger the collapse of the financial system. And members of this network are the most “prominent” players in the biotech space.

One of those players is Jonathan Aschoff, the doctor-impersonating fraud who was, in the Spring of 2007, making the long-shot prediction that the FDA would not approve Dendreon’s “dangerous” treatment for prostate cancer. As we know, Aschoff previously worked for Sturza’s Institutional Research, run by a fellow who faced multiple SEC investigations (none of which led to any action) for allegedly publishing false information to help short sellers (such as Michael Steinhardt) manipulate stocks.

Under the strain of those investigations, Sturza shut his operation down. Now Sturza helps manage a hedge fund called Ursus. Ursus is owned by Jim Chanos, the Steinhardt protégé who housed the hooker of Cramer’s former college roommate, Eliot Spitzer.

Ursus specializes in shorting biotech stocks. There are Wall Street brokers who say that Ursus was short selling Dendreon while Sturza’s disciple, Jonathan Aschoff, was bashing the company and others in this network were looking to cash in.

But it is difficult to know for sure whether Ursus was selling short. It is difficult to know who was responsible for flooding the market with at least 9 million (and maybe tens of millions of) phantom Dendreon shares. It is difficult to know because the SEC does not require hedge funds to disclose their short positions, and does not release information on who is selling stock and failing to deliver it.

As far as the SEC is concerned, it’s all a big secret.

But we do know that Aschoff was predicting that Dendreon’s stock would sink to $1.50 right after Dendreon received an overwhelmingly positive vote from the FDA’s advisory panel, and right before Dendreon was derailed by some singularly strange occurrences. In addition, we know that at this time only ten hedge funds on the planet held large numbers of Dendreon put options (bets against the company), and that at least seven of those hedge funds can be tied to the famous criminal Michael Milken or his close associates.

Michael Milken, of course, is not just a criminal, but also a “prominent philanthropist” whose Prostate Cancer Foundation has received much acclaim from the world at large. But, as we will see, it was not just those seven hedge funds, but Michael Milken himself, who stood to earn a tidy profit from the strange occurrences that were to derail Dendreon, a company with a promising treatment for prostate cancer.

* * * * * * * *

To be continued…Click here for Chapter 7.

If this article concerns you, and you wish to help, then:
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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 5 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 5 of 15)



What follows is PART 5 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

Where we left off, we had learned that CNBC’s Jim Cramer had declared Dendreon to be a “battleground stock.” We had also learned that Dendreon was later attacked by naked short sellers who illegally flooded the market with phantom stock, right at the time when the FDA’s advisory panel delivered the fantastic news that it had voted in favor of approving Dendreon’s prostate cancer treatment.

We had learned further that at the end of March, 2007 – right after the FDA’s vote, and right before Dendreon was to be derailed by some strange occurrences — only ten hedge funds on the planet held significant numbers of Dendreon put options (bets against the company). At least seven of those hedge funds are quite “colorful.”

We have learned the identities of four of the seven “colorful” hedge funds. Now we hear more from Jim Cramer, and discover the identity of the fifth hedge fund that stood to profit from the demise of Dendreon and its promising treatment for prostate cancer…

* * * * * * * *

“SELL! SELL! SELL!” shouted Jim Cramer on March 28, 2007.

The CNBC “journalist” assured his viewers that the FDA advisory panel would vote that Dendreon’s treatment for prostate cancer was neither safe nor effective (notwithstanding the fact that the FDA had given the treatment “priority review” status because Provenge had shown strong trial results and was destined for critically ill patients).

On the following day, when the FDA advisory panel voted unanimously that Provenge was safe and overwhelmingly that it was effective, Cramer said, once again, that he had made “a mistake.” By way of explanation, Cramer said that he had mixed up Dendreon’s treatment, Provenge, with Provaisic, the fictional drug from the 1993 Hollywood movie “The Fugitive,” in which Harrison Ford plays a doctor trying to expose an evil pharmaceutical company called Devlin MacGreggor.

But Cramer, again drawing upon his vast medical expertise, continued to insist that Provenge remained unlikely to gain FDA approval.

By this time, a number of bloggers and stock market observers had noted that Cramer, a former hedge fund manager, had recently made a video available to a limited number of high-paying subscribers to his financial news website, TheStreet.com. In this video, Cramer advised his viewers – mostly Wall Street operators — to illegally drive down stock prices.

“Maybe you need $10 million capital to knock [a stock] down,” Cramer had said. “It’s a fun game and it’s a lucrative game…By the way, no one else in the world would ever admit that, but I don’t care…Now, you can’t foment…You can’t create yourself an impression that a stock’s down. But you do it anyway because the SEC doesn’t understand it…This is just actually blatantly illegal…But I think it’s really important to foment…You get [the CNBC reporter]…talking about it as if there’s something wrong [with the stock]…Then you would call The Wall Street Journal and get the bozo reporter…if you’re not doing it maybe you shouldn’t be in the game.”

The bloggers and observers who pointed to this video as evidence of Cramer’s skulduggery also noted that Cramer had once planned to run his hedge fund out of the offices of Ivan Boesky, the famous co-conspirator of the criminal stock manipulator Michael Milken. When Boesky was indicted, Cramer instead went to work with Michael Steinhardt, the Boesky-Milken crony and “prominent” hedge fund manager whose father was the “biggest Mafia fence in America” and who was financier for the fugitive billionaire Marc Rich, for whom Steinhardt later arranged a pardon from Bill Clinton.

By 2007, I had (while working as an editor for the Columbia Journalism Review) spent close to a year  studying the work of Cramer and a clique of influential journalists, most of whom had previously worked in high-level positions for Cramer’s website, TheStreet.com. I had discovered that the existence of short-side stock manipulation was denied by these journalists  (including Cramer, when he was communicating to general audiences, as opposed to when he was explaining to select groups of Wall Street operators how to do the thing he was publicly saying does not exist).

The journalists were especially keen to whitewash the crime of naked short selling, and given the threat that this crime posed to so many companies and the very stability of the financial system, it seemed to me that these journalists were engaged in a cover-up of immense proportions.

I had also discovered that these journalists routinely reported negative stories that contained bias, falsehoods, and well-timed “mistakes.” The vast majority of these stories were sourced from one particular network of hedge fund managers and miscreants. Invariably, these stories were about public companies that the hedge fund managers had sold short. And, invariably, these stories were aired right at the time that the target companies were getting bombarded with phantom stock.

Moreover, most of the hedge funds and miscreants in this network seemed, like Jim Cramer, to be connected in important ways to the criminals Michael Milken and Ivan Boesky, or their close associates. One of them was David Rocker.

Last year, Rocker’s hedge fund, Copper River (previously known as Rocker Partners), was shut down. Soon after, Carol Remond, a Dow Jones Newswires journalist who had close ties to Rocker, revealed that Rocker’s most important trading strategy had been to abuse the SEC exemption allowing market makers to engage in naked short selling (see “Carol Remond Tells a Joke She Doesn’t Get” for details) .

According to Remond, when the SEC closed this loophole, making it more difficult for Rocker Partners/Copper River to work with option market makers to manufacture phantom stock, the hedge fund went out of business. What she left unexplained, however, was that such exploitation was illegal. Therefore, Dow Jones reporter Carol Remond was in fact bemoaning the tragedy that a hedge fund had to close because it was not able to break the law anymore.

Rocker had previously worked as a top trader for Michael Steinhardt, the Boesky and Genovese Mafia crony whose offices had also housed Jim Cramer’s hedge fund. In later years, Rocker became the largest outside shareholder in Cramer’s financial news website, TheStreet.com.

In 2006, staff at the Securities and Exchange Commission suspected that Rocker and other hedge funds in his network were working with an “independent” financial research shop called Gradient Analytics and a select group of journalists to disseminate false information in order to drive down stock prices. The SEC issued subpoenas to Rocker, Gradient, TheStreet.com, Jim Cramer, Herb Greenberg (a founding editor of TheStreet.com who was then working for MarketWatch.com and CNBC), and that Dow Jones reporter, Carol Remond.

cramersubpoena2photo Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 5 of 15)In response, Cramer famously vandalized his subpoena on live television. Other journalists (most of them tied to Cramer) went berserk, claiming that Rocker had done no wrong and the SEC’s subpoenas had violated the media’s first amendment right to free speech. Soon after, the SEC said it would not enforce the subpoenas it had issued to journalists. And a year later, the commission dropped its investigation of Gradient and Rocker.

In May of 2006, shortly after the SEC announced that it would not enforce its subpoenas, a recently dismissed SEC attorney named Gary Aguirre wrote an eye-popping letter to the United States Congress in which he stated that he had led an SEC investigation into allegations of rampant naked short selling and insider trading at a hedge fund called Pequot Capital.

Aguirre said that his rank-and-file colleagues at the SEC believed that Pequot’s naked short selling had the potential to “seriously injure the financial markets,” but before he could complete his investigation, Aguirre’s superiors at the SEC, captured by powerful Wall Street interests, had fired him for political reasons.

Since then, a U.S. Congressional Committee has investigated and issued a lengthy report noting that there seemed to be evidence that Pequot was indeed engaged in “stock manipulation” (naked short selling). As for the SEC’s failure to fully investigate Aguirre’s allegations, the Congressional Committee concluded that the “picture is colored with overtones of a possible cover-up.”

The SEC inspector general also issued a report that backed up all of Aguirre’s claims.

Late in 2008, the SEC re-opened its investigation into Pequot Capital. And in May, 2009, Pequot manager Art Samberg shut down the fund, noting that the investigations had made the “situation increasingly untenable for the firm and for me.”

But from what is known publicly, the SEC is only looking into insider trading at Pequot. As for Aguirre’s investigation into Pequot’s alleged naked short selling – the crime that had the potential to “seriously injure the financial markets”—the SEC has said nothing.

Remember, as far as the SEC is concerned, illegal naked short selling is a big secret – “proprietary trading strategies.”

At any rate, it is worth noting that Cramer’s financial news website, TheStreet.com, had several founding partners. One was Cramer. Another was Marty Peretz, a Milken-Boesky crony who was–along with Marc Rich, Boesky, and the Genovese Mafia—a key limited partner of Michael Steinhardt (the hedge fund manager who gave Rocker his start and also incubated Cramer’s hedge fund).

A third founding partner of TheStreet.com was famously alleged to have engaged in rampant illegal naked short selling, just as David Rocker, once the largest outside shareholder of TheStreet.com, was reported (by Dow Jones reporter Carol Remond, unwittingly) to have engaged in rampant illegal naked short selling in cahoots with options market makers.

The name of this third founding partner of Cramer’s website, TheStreet.com, was…Pequot Capital, the hedge fund whose alleged naked short selling and insider trading were the targets of Gary Aguirre’s SEC investigation — the investigation that got quashed, leading to one of the greatest scandals in SEC history.

So it goes almost without saying that Pequot Capital was the fifth of seven “colorful” hedge funds that held large numbers of put options in Dendreon at the end of March, 2007 – right at the time when Cramer was shouting “SELL! SELL! SELL!” and criminal naked short sellers were flooding the market with at least 9 million phantom Dendreon shares.

* * * * * * * *

In addition to Cramer’s rants, there were other indications that Dendreon might be in the sights of some powerful players, and might therefore be in trouble – despite the fact that its treatment for prostate cancer seemed to be on the fast track to FDA approval.

On March 22, 2007, CNBC’s Mike Huckman wrote in a blog that he remembered “sitting at a table at a rare Dendreon analyst meeting a few years ago and someone from a Connecticut hedge fund leaned over and whispered in my ear, ‘It [Provenge] doesn’t work.’” Huckman made no indication of questioning whether the hedge fund might have had a motive for saying that.

There were odd mutterings from other quarters as well. On the day before the FDA’s advisory panel met to vote on Provenge, Matthew Herper of Forbes magazine published an article casting doubts on Dendreon’s prospects. He wrote that “researchers, statisticians and Wall Street analysts are fiercely debating whether there is enough data about [Dendreon’s] radical new treatment.”

In fact, there was no “fierce” debate at all. For most Wall Street analysts, the calculation was rather simple. Given that Dendreon’s trials had shown that Provenge was safe, and given that the treatment was destined for end-stage patients (hence its “priority review” status), the advisory panel was likely to vote in its favor. In 97% of all cases, the FDA had followed the recommendations of its advisory panels. And when FDA advisory panels recommended approval for drugs destined for dying patients, the FDA had accepted its panels’ recommendations 100% of the time.

When the FDA approved treatments, the companies that developed them almost always saw their stock prices go up. So from the perspective of most Wall Street analysts, the future for Dendreon looked bright.

As for those “researchers and statisticians,” most agreed that Provenge was not only safe, but also effective. However, a small number of researchers and statisticians were, along with the hedge funds, whispering in reporters’ ears. They were saying that Provenge doesn’t work.

But there were excellent reasons to doubt the words of the researchers who were critical of Provenge. And, as we will see, the most prominent of them were preparing (with the possible connivance of a criminal “philanthropist” named Michael Milken and seven “colorful” hedge fund managers) to cash in on one of the stranger occurrences in the FDA’s 80 years of existence.

* * * * * * * *

To be continued….Click here for Chapter 6

If this article concerns you, and you wish to help, then:
1) email it to a dozen friends;
2) go here for additional suggestions: “So You Say You Want a Revolution?

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 1 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 1 of 15)



What follows is part 1 of a 15-part series. The remaining installments will appear on Deep Capture over the next several weeks, after which point the story will be published in its entirety. It is a story about the travails of just one small company, but it describes market machinations that have affected hundreds of other companies, and it contains a larger message for anyone concerned about the “deep capture” of our nation’s media and regulatory bodies.

* * * * * * * *

This story, like too many others, begins with Jim Cramer, the CNBC personality, making “a mistake.”

On September 26, 2005, Cramer  announced to his television audience the sad news (punctuated by funny sound effects – a clown horn, a crashing airplane) that Provenge, an experimental treatment for prostate cancer, had flopped. Thousands of end-stage patients had been pinning their hopes on Provenge, but according to Cramer the treatment had just been rejected by the Food & Drug Administration. It would never go to market.

This seemed odd, because Dendreon (NASDAQ: DNDN), the company developing Provenge, had not yet submitted an application for FDA approval. As everybody in the biotech investment community knew, Dendreon had, in fact, only recently completed Phase 3 clinical trials and probably would not face scrutiny from an FDA advisory panel for at least another year.

As for the likelihood that the advisory panel would eventually vote in favor of Provenge, the odds looked quite good. The Phase 3 trials had demonstrated that Provenge significantly increased patient survival with only minimal side-effects, such as a few days of mild fever. Moreover, Provenge was an altogether different sort of treatment – one that fought tumors by boosting patients’ immune systems rather than subjecting them to the ravages of chemotherapy.

Provenge was not a magical elixir of life, but Dendreon was doing more than just developing a new technology. It was pioneering a treatment that could revolutionize the way that doctors fight prostate cancer. By some conservative estimates, the market for Provenge alone could reach more than $2 billion a year. If the treatment could be applied to other cancers, the market would be even larger.

The morning after Cramer declared Dendreon and Provenge to be dead in the water, Mark Haines, the anchor of  CNBC’s “Squawk Box” program, apologized for Cramer’s “mistake.” That afternoon, at an important UBS investor conference, Dendreon presented still more promising data. This would normally have given a significant boost to the company’s stock price, but the value of Dendreon’s shares stayed flat for the day, and then began a gradual decline.

This had partly to do with Cramer. The next evening, on his “Mad Money” program, the journalist (or entertainer, or self-confessed criminal, or… whatever Cramer is) acknowledged that the FDA had not yet rejected Provenge, but drawing upon his medical expertise, Cramer maintained that Provenge was not effective. In characteristically level-headed fashion,  he announced that Dendreon shareholders were drunken, carousing, gambling Falstaffs who “might as well take their money to Vegas.”

Dendreon, Cramer added (rather ominously), was  a “battleground stock.”

* * * * * * * *

What Cramer meant by “battleground ” has since become all too apparent. For the past four years, Dendreon has been one of the most manipulated stocks on NASDAQ. During some periods the volume of trading in the shares of this little company has exceeded the trading in America’s largest corporations – a good sign that hedge funds have been churning the stock to move the market.

And with every burst of good news, the company has faced waves upon waves of naked short selling – hedge funds illegally selling millions of shares that do not exist to flood the market and drive down the stock price. Along with the phantom stock, people seeking to diminish Dendreon have deployed false financial research , biased media, bogus class action lawsuits, Internet bashers, dubious science, and other familiar weapons of the “battleground.”

The denouement of this stock market “battle” occurred recently, on April 28, 2009, when Dendreon was to present all-important results at the American Urological Association’s annual meeting in Chicago. Some days prior, Dendreon’s CEO, Mitch Gold, had announced that the results of an Independent Monitoring Committee study were “unambiguous in nature…a clear hit” for Provenge.

If a CEO uses language like that and does not produce the data to back it up, he is guaranteed a visit from the Securities and Exchange Commission. Unless the CEO or his allies have juice with the SEC, the commission will usually charge the CEO with making false statements to pump his stock.  Gold was unlikely to take that risk, so it was clear to most people that the meeting in Chicago was going to be a triumph for Dendreon.

And it indeed it was.  The data presented that day showed that Provenge lowers the risk of prostate cancer death by 22.5 percent, with little or no toxicity. With a few notable exceptions (some of whom are to appear as prominent characters in this story), nearly every medical professional on the planet now concurred that Provenge was a blockbuster drug – one that should receive FDA approval and make Dendreon a highly profitable company.

But the hedge funds weren’t finished. In the days following Gold’s announcement, short sellers piled on with a vengeance, returning Dendreon to the leagues of the world’s most heavily traded stocks. The firm once again found itself on the SEC’s “Reg Sho” list of  companies whose stock was “failing to deliver” in excessive quantities –a sign of illegal naked short selling.

On CNBC, meanwhile, Cramer had hammered Dendreon. On April 6, 2009,  amidst ear-rattling sound effects –dogs fighting, and (inexplicably) a baby crying — Cramer had said “I don’t like Dendreon.”  He had shouted that Provenge had no chance of getting FDA approval and Dendreon shareholders should “SELL! SELL! SELL!”

Then, on April 28, at 10:01  am central time — just hours before Dendreon’s triumph in Chicago – an anonymous message board author on Yahoo! Finance posted this message: “HIGH PROBABILITY OF MASSIVE BEAR RAID…DNDN [Dendreon] could easily drop 50% on a massive bear raid…its coming today@12:30 pm central.”

Just minutes before 12:30 pm central, Dendreon’s stock price began to fall. It didn’t just fall–it nosedived from $24 to under $8 … in 75 seconds.  That’s correct, during a period of 75 seconds, more than 4,000 trades were placed, totaling 3 million shares, or about 50% of Dendreon’s (spectacularly high) average daily volume. Given that the message board poster knew what was coming more than two hours beforehand, and predicted the timing almost precisely, it is a safe bet that this was a coordinated, illegal naked short selling attack. And just in case you still didn’t get this – it caused Dendreon’s share price to lose more than 65% of its value – in just 75 seconds flat.

“My desk was floored,” one trader wrote on a message board. “We all just stood up swearing, headsets and other assorted desk items being thrown at monitors…I haven’t heard that much swearing in years…”

It was, say others, one of the strangest occurrences in Wall Street history.

* * * * * * * *

In fact Dendreon had witnessed even stranger occurrences – brutal naked short selling attacks occurring simultaneously with antics that simply have no precedence in the world of medicine. As will be described presently, these strange occurrences very nearly destroyed Dendreon in 2007.  These strange occurrences have also prevented patients from having access to Dendreon’s treatment – a treatment that, as will become clear, should have reached the market some time ago.

And from the day of that first strange occurrence in September 2005, when Cramer predicted that Dendreon would become a “battleground” stock, to the latest strange occurrence in April 2009, when Dendreon’s stock nosedived by 65% in 75 seconds, more than 60,000 men in the United States died of prostate cancer.

So we must ask: Who did this? Who stood to profit from Dendreon’s demise? Were the extremely odd delays in getting Provenge to market purely accidental? Or, were the remarkable trading patterns and volatility accompanying those delays in fact an expression of stock manipulation, and if so, who were the manipulators?  Since we know that Dendreon experienced naked short selling, and naked short selling is a crime, who are the criminals?  And when much of the medical community rallied around Provenge last month, which manipulators crashed the stock to single digits – possibly to make the company ripe for a hostile takeover by the very people who once sought to destroy it?

* * * * * * * *

It is one of the peculiarities of the Securities and Exchange Commission that while it is ever-eager to hassle CEOs of small companies, it goes to considerable lengths to protect billionaire hedge fund managers. The SEC has publicly stated that naked short selling is a crime. It has said that it has evidence that illegal naked short selling occurs on a large scale and does serious damage to public companies. But it almost never says which hedge funds are responsible. It never says who is flooding the market with  phantom stock.

As far as the SEC is concerned, it’s all a big secret. As the commission states on its website, the naked short selling statistics “of individual firms and customers is proprietary information and may reflect firms’ trading strategies.” It seems not to matter to the SEC that those “proprietary” trading strategies are illegal.

Meanwhile, the SEC does not require hedge funds to disclose even their legal short positions. As a result, it is impossible for any journalist to present photo-perfect portraits of attacks on companies like Dendreon.

But brokers and other sources can tell us who some of the short sellers are. And by analyzing public information (such as data that hints at various hedge funds’ options strategies) we can make educated guesses as to who has the most to gain from a company’s decline. We can also come to understand the relationships that bind certain hedge fund managers and miscreants, and ask whether these people might have been acting in concert.

If the relationships are few in number, or separated by six degrees, we must abandon the project – a spatter of dots on the wall is not a work of art. But if the dots are plentiful, precise, and show a recognizable pattern, then we have something valuable – a sort of pointillist painting of market behavior.

In the case of Dendreon, we have such a painting. And when we look at this painting, with its dozens of data points, we can see quite clearly the familiar smirk of Michael Milken, the famous “junk bond king” and criminal stock manipulator.

During the times when Dendreon has been most evidently a “battleground stock,” nearly every hedge fund known to have placed large bets against Dendreon and a significant number of Dendreon’s detractors — esteemed medical professionals, financial research analysts, government officials, and Jim Cramer himself – have been tied to Milken or his close associates.

Most of the hedge fund managers who appear in this story are part of a tight network that has been in operation – exchanging information, attacking the same stocks, employing the same tactics – for upwards of twenty years. This is the same network that attacked the major financial institutions in 2008, possibly contributing to the collapse of the American financial system. And though I recognize that some people find this hard to absorb, I will present further evidence that a good number of the people in this network have ties to organized crime – the Mafia.

As for Milken, he was released from prison in 1993, at which point he went to considerable lengths to rebrand himself as a “prominent philanthropist.” One of the “philanthropic” outfits that he founded is the Prostate Cancer Foundation, and for this he has received widespread applause from the media, government officials, and the business elite. Because Milken has effectively bathed himself in the glow of his “philanthropy” (and because his public relations machine is so indisputably clever), many people find themselves saying that Milken’s financial crimes were but misdemeanors – the slight over-exuberance of a “market innovator.”

But the Dendreon story raises serious questions about the nature of Milken’s “philanthropy” – and about a society that venerates and even seeks guidance and favor from the most destructive financial criminal the world has ever known.

* * * * * * * *

To be continued…Click here for Chapter 2.

If this article concerns you, and you wish to help, then:
1) email it to a dozen friends;

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

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Our Watchdogs and the Financial Scandal of the Century


“Accountability – Integrity – Reliability”

That’s the motto of the Government Accountability Office, and it almost makes you believe that there really is a functioning watchdog – somebody, aside from us Internet loons, to investigate and report on the incompetence and malfeasance that pervade our public institutions.

Certainly, there were high hopes when the GAO began investigating the Securities and Exchange Commission’s oversight of the Depository Trust and Clearing Corporation (DTCC), a black box Wall Street outfit that is at the center of one of the great financial scandals of our era.

Alas, the GAO has completed its “investigation” and issued a report on its findings. After reading this report, and considering once again that the GAO (“Accountability – Integrity – Reliability”) is the last line of defense against government miscreancy, I have concluded, and am obliged to inform you, that we are, without a shadow of a doubt, totally screwed.

The report begins with an explanation: “An effective clearance and settlement process is vital to the functioning of equities markets. When investors agree to trade an equity security, the purchaser promises to deliver cash to the seller and the seller promises to deliver the security to the purchaser. The process by which the seller receives payment and the buyer, the securities, is known as clearance and settlement.”

In other words, people who sell stock need to deliver real stock. That’s kind of important to the“functioning of equities markets.” If you think it is strange that the GAO ( “Accountability – Integrity – Reliability”) needs to clarify this point, you can begin to understand the scope of a scandal that has helped bring us to the brink of a second Great Depression.

The problem is that many hedge funds and brokers engage in illegal naked short selling – selling stock and other securities that they have not yet borrowed or purchased, and failing to deliver stock within the allotted 3 days. They do this to drive down stock prices and destroy public companies for profit.

Emmy Award-winning journalist Gary Matsumoto reported on the Bloomberg newswire last week that naked short selling is one of Wall Street’s “darkest arts” and contributed to the demise of both Lehman Brothers and Bear Stearns. SEC data shows that an astounding 32.8 million shares of Lehman were sold and not delivered to buyers as of last September 11, days before the company declared bankruptcy.

The collapse of Lehman, of course, triggered the near-total implosion of our financial system.

How could this have been allowed to happen?

One answer lies within that black box – the Depository Trust and Clearing Corporation. The DTCC is a quasi-private, Wall Street owned and operated organization that is charged by Congress and the SEC with ensuring that securities trades are cleared and settled. As is evident from the cases of Lehman, Bear, and hundreds of other companies, however, the DTCC often fails to do its job.

In fact, it enables naked short selling to go unpunished. Rather than track individual trades to ensure that delivery occurs, the DTCC merely calculates a net total of sales and purchases at the end of each day. So we know how many shares of a given company fail to deliver each day, but the DTCC won’t tell us which hedge funds or brokers are responsible.

Meanwhile, the DTCC maintains something called the “Stock Borrow Program,” whereby it purportedly borrows a bundle of shares from cooperating brokers and uses the shares to settle failed trades. These shares are not on deposit with the DTCC, and the DTCC records a trade as “settled” with a mere electronic entry — i.e. by pushing a button on a computer rather than exchanging an actual certificate. So it is unclear that the Stock Borrow Program is actually delivering stock. Moreover, trade volume data suggests that the Stock Borrow Program might be using its bundle over and over again, settling multiple trades with the same “shares,” and generating what is, in effect, massive amounts of counterfeit, or “phantom” stock.

While enabling hedge funds and brokers to engage in their dark art, the DTCC also goes to lengths to deny that illegal naked short selling occurs and to smear the reputations of people who say otherwise. It has orchestrated this vicious public relations campaign in cahoots with a crooked Portfolio magazine reporter named Gary Weiss, who has worked closely with a motley cast of Mafia-connected hedge fund managers and convicted criminals.

There is indisputable evidence showing that Weiss, while posing as a journalist, not only worked inside the DTCC’s offices, but also went so far as to seize total control of the Wikipedia entries on “naked short selling” and “Depository Trust and Clearing Corporation.” Yet, to this day, Weiss flat-out denies that he has ever worked with the DTCC and insists that he has never edited any Wikipedia page, much less the fabulously distorted entries dealing with naked short selling.

That the DTCC facilitates and seeks to cover up naked short selling is not surprising given that it is owned by the very brokerages who profit from catering to hedge funds who commit  the crime. The DTCC’s board of directors has included several market makers – including Peter Madoff, brother of Bernard Madoff, the $50 billion Ponzi schemer with ties to the Mafia — who made a tidy profit from naked short selling.

At any rate, the SEC is responsible for overseeing the DTCC and ensuring that it is doing all it can to enforce delivery of shares and other securities. But the SEC conducts examinations of the DTCC only once every two years, and former SEC officials have admitted to Deep Capture that these visits entail nothing more than “investigators” asking a few courteous questions. Indeed, a number of former SEC officials have told us that the nation’s securities regulator doesn’t even understand what the DTCC does.

Enter the GAO (“Accountability – Integrity – Reliability”). Ostensibly, the GAO was going to determine whether the SEC was properly monitoring the DTCC. However, the GAO’s “investigation” entailed nothing more than visiting the SEC and asking a few courteous questions. In response, the SEC told the GAO that there is nothing to worry about, and the GAO duly issued a report that concluded that the SEC had told the GAO there is nothing to worry about.

Really, that, in essence, is what the report says.

It notes, for example, that the SEC examines the DTCC only once every two years, but offers no opinion as to whether this is sufficient oversight of an organization that processes securities transactions worth $1.4 quadrillion – or 30 times the gross product of the entire planet – every year.

And here’s what the report has to say about the DTCC’s Stock Borrow Program:

“…in response to media criticism and allegations made by certain issuers and     shareholders that NSCC and DTC [units of the DTCC] were facilitating naked short selling through the operation of the Stock Borrow Program, OCIE [a unit of the SEC] also incorporated a review of this program into the scope of its 2005 examination. These critics argued that the Stock Borrow Program exacerbated naked short selling by creating and lending shares that are not actually deposited at the DTC, thereby, flooding the market with shares that do not exist. As part of their review, OCIE examiners tested transactions in securities that were the subject of the above referenced allegations or had high levels of prolonged FTD. The examination did not find any instances where critics’ claims were validated. However, we did not validate OCIE’s findings.” [Emphasis mine]

In other words, the SEC claims to have examined the Stock Borrow Program once – in 2005 — but the GAO (“Accountability – Integrity – Reliability”) has no idea what that examination entailed. The SEC claims to have “tested transactions” in securities that had “high levels of prolonged” failures to deliver, but offered the GAO no credible explanation as to why so many companies have seen millions of their shares go undelivered nearly every day since 2005.

The SEC says it looked into the “critics’ claims” and found them to be without merit. The GAO duly notes this as if what the SEC has to say were the final say in the matter. As to whether the SEC’s own claims might have been without merit, the GAO says only that it “did not validate” the SEC’s findings.

Isn’t the job of the GAO (“Accountability – Integrity – Reliability”) to “validate” – or, as it were, invalidate – the SEC’s findings? It is not exactly an “investigation” to merely ask the SEC what it has to say and then publish a report confirming that that is, in fact, what the SEC had to say.

Last year, more than 70% of all failures to deliver were concentrated on a select 100 companies that short sellers had also targeted in other ways (planting false media stories, issuing false financial research, filing bogus class action lawsuits, harassing and threatening executives, engaging in corporate espionage, circulating false rumors, pulling strings to get dead-end federal investigations launched, etc.), but the SEC told the GAO that the failures to deliver could be mostly the result of “processing delays” or “mechanical errors.”

Billions of undelivered shares – most of them concentrated on 100 known targets of specific short sellers. Many of those shares left undelivered for months at a time. The SEC tells the GAO that this might be due to “mechanical errors.” And what does the GAO (“Accountability – Integrity – Reliability”) do? It transcribes the SEC’s claims, offers no opinion as to whether the SEC might be full of it, and then acknowledges that it is in no position to have such opinions because it “did not validate” anything.

In a written response to the GAO, the SEC noted happily that the GAO (“Accountability – Integrity – Reliability”) “made no recommendations” in its report.

“We appreciate the courtesy you and your staff extended to us during this review,” the SEC told the GAO.

* * * * * * * *

Far better is a report issued last week by the Office of the Inspector General at the Securities and Exchange Commission. Inspector General David Kotz, charged with conducting independent oversight of the SEC, is a heroic figure – an honest man in government. He has consistently lambasted the SEC for corruption and incompetence, and now he has investigated the SEC’s regulation of naked short selling. He found the regulation to be fairly abysmal and offered concrete recommendations for how the commission could reform itself.

The report concludes:

“The OIG received numerous complaints alleging that [SEC] Enforcement failed to take sufficient action regarding naked short selling. Many of these complaints asserted that investors and companies lost billions of dollars because Enforcement has not taken sufficient action against naked short selling practices.”

“Our audit disclosed that despite the tremendous amount of attention the practice of naked short selling has generated in recent years, Enforcement has brought very few enforcement actions based on conduct involving abusive or manipulative naked short selling…during the period of our review we found that few naked short selling complaints were forwarded to Headquarters or Regional Office Enforcement staff for further investigation…”

“Given the heightened public and Commission focus on naked short selling and guidance provided to the public leading them to believe these complaints will be taken seriously and appropriately evaluated, we believe the ECC’s current policies and procedures should be improved to ensure that naked short selling complaints are addressed appropriately.”

As for the SEC’s claims that naked short selling isn’t really a problem, or that failures to deliver could be the result of “mechanical error,” the OIG nicely contrasts this blather with the SEC’s own decision last fall to take “emergency” action against naked short selling (because naked short sellers were contributing to the toppling of the American financial system) and the SEC’s statement that “we have been concerned about ‘naked’ short selling and, in particular, abusive ‘naked’ short selling, for some time.”

In response to the OIG’s rightfully scathing report, the SEC wrote a letter in which it flatly refused to abide by most of the OIG’s recommendations.

The SEC did not thank the OIG for its “courtesy.”

* * * * * * * * *

Meanwhile, that other watchdog – the media – continues to ignore the problem of naked short selling. After Gary Matsumoto’s rather earth-rattling Bloomberg report that naked short selling destroyed Bear Stearns and Lehman Brothers – and, by extension, destabilized the entire financial system – there were a total of two mainstream media stories on the subject.

The first was in Portfolio magazine. Actually, this wasn’t really a story. It was one of those question and answer things. And the Q&A was not with some credible expert. Instead, a Portfolio magazine reporter interviewed another Portfolio magazine reporter about the Bloomberg reporter’s story. Even more shocking to those who believe there is hope for balanced media coverage of this issue, the interviewee was none other than… Gary Weiss, the crooked reporter who sidelines as a flak for the DTCC.

Weiss, of course, smeared the messenger, suggesting that Matsumoto was a “conspiracy theorist.” He cited no data or evidence, but repeated the SEC and DTCC nonsense that failures to deliver might be caused by mechanical errors (which just happen to show up overwhelmingly concentrated in those firms targeted by the hedge funds who serve as Gary Weiss’s sources). And he asserted that naked short selling isn’t a problem because the SEC says that naked short selling isn’t a problem (except when the SEC says that naked short selling is an “emergency”).

Read the full interview here. You’ll get a sense of the way Weiss deliberately employs straw man arguments to distort the truth, though as an example of Weiss’s dishonesty, this is rather mild.

* * * * * * * *

The other magazine to report on the Bloomberg bombshell was the Columbia Journalism Review, which is the most prominent watchdog of the watchdogs – an outlet for serious media criticism. As Deep Capture‘s regular readers know, I used to work as an editor for the Columbia Journalism Review. I spent ten months preparing a story for that publication about dishonest journalists (including Gary Weiss) who were deliberately covering up the naked short selling scandal.

In the course of working on this story, I was threatened and, on one occasion, punched in the face. Then, in November 2006, shortly before the story was to be published, a short selling hedge fund that I was investigating announced that it would henceforth be providing the Columbia Journalism Review with the funding that would be used specifically to pay my salary.

The hedge fund that bribed the Columbia Journalism Review is called Kingsford Capital. It has worked closely with criminals, including a thug named Spyro Contogouris. In November 2006, a couple weeks after Kingsford bribed the Columbia Journalism Review, an FBI agent arrested Spyro. This was the same FBI agent who was investigating a cabal of short sellers – SAC Capital, Kynikos Associates, the former Rocker Partners, Third Point Capital, Exis Capital — who were then working with Spyro to attack a company called Fairfax Financial.

Spyro had harassed and threatened Fairfax executives, so he was going to feature prominently in my story. The centerpiece of my story, however, was to be that cabal of short sellers, not only because the Fairfax case was quite shocking, but also because these short sellers and a few others were the primary sources to dishonest journalists (especially MarketWatch reporter Herb Greenberg and CNBC personality Jim Cramer) who were then whitewashing the naked short selling scandal. Moreover, nearly every company known to have been targeted by these short sellers had been victimized by naked short selling, with millions of shares going undelivered, often for months at a time.

Emails in my possession show that Kingsford Capital is closely connected to that cabal of short sellers. Moreover, one of Kingsford’s managers at the time, Cory Johnson, was, along with Herb Greenberg and Jim Cramer (the journalists who were going to feature most prominently in my story) a founding editor of TheStreet.com. (Johnson removed Kingsford from his online resume after I revealed the relationship in “The Story of Deep Capture.”).

For a number of years, Kingsford Capital was partnered with Manuel Asensio, who was one of the most notorious naked short sellers on the Street. Prior to his work with Kingsford, Asensio worked for First Hanover, a Mafia-affiliated brokerage whose owner later became a homeless crack addict.

I was investigating Kingsford and Asensio primarily because they appeared to be among the favorite sources of Gary Weiss, the crooked journalist who was then secretly doubling as a flak for the black box DTCC. Asensio, for example, helped Weiss write “The Mob on Wall Street,” a 1995 BusinessWeek story that was all about the Mafia’s infiltration of Wall Street stock brokerages, but which deliberately omitted reference to Mafia-connected naked short sellers, even though the brokerage that featured most prominently in the story, Hanover Sterling, was at the center of one of the biggest naked short selling fiascos in Wall Street history.

According to someone who knows Weiss well, Asensio was also a source for a Weiss story about the gangland-style murder of two stock brokers, Al Chalem and Meier Lehmann. Chalem was tied to the Mafia and specialized in naked short selling. Multiple sources say that Russian mobsters killed Chalem in a dispute over the naked short selling of stocks that were manipulated by brokerages connected to the Russians and the Genovese organized crime family.

One of these sources – a man who worked closely with Chalem – says that he tried to tell Weiss the true story, but Weiss refused to listen to anybody who would pin the murders on the Russian Mob or accuse Chalem of naked short selling. Instead, Weiss wrote a false story describing Chalem as a “stock promoter” and suggesting that he had been killed by people tied to the Gambino crime family, which was then a fierce rival of the Genovese and the Russians.

On another occasion, the current principals of Kingsford Capital sent Weiss a fax containing false negative information about a company called Hemispherx Biopharma. Another source, who was sitting in Weiss’s office at the time, says that he tried to tell the reporter that Kingsford was working with Asensio, that Asensio might have ties to the Mob, and that Asensio was naked short selling Hemispherx stock. Weiss ignored this information and wrote a negative story about Hemispherx. Hemispherx’s stock promptly plummeted by more than 50%.

Remember, Gary Weiss is the Portfolio magazine reporter who just who just told Portfolio magazine that only “conspiracy theorists” believe that abusive short selling is a problem.

* * * * * * * *

It is too much for me to believe that Kingsford Capital’s managers (along with Gary Weiss and Asensio?) could be influencing the Columbia Journalism Review’s stories, but I do know that the magazine is now an ardent defender of short sellers and has written favorably about several of the dishonest journalists – including Gary Weiss –who were to appear in my story.

And, in its recent piece about Matsumoto’s Bloomberg bombshell, the Columbia Journalism Review cast doubt on the theory that naked short selling wiped out Lehman – never mind those 30 million shares that didn’t get delivered.

The Columbia Journalism Review reporter, who receives a salary thanks to the beneficence of Kingsford Capital, wrote this:

“Now, I don’t have a dog in the naked-shorts fight. I can’t tell you if this is being done illegally on a large-scale and having a real impact on companies. I just don’t know.”

“But one of the first things that comes to mind here is—wouldn’t you expect fails-to-deliver to soar for a company teetering on the brink of bankruptcy under an avalanche of bad news? I’d expect there would be a rush to short a stock like Lehman, which was about to collapse anyway. So, people who usually could expect to borrow shares to short might have found that they couldn’t because everybody else was doing the same thing.”

In other words, people who “could expect to borrow shares,” but “found that they couldn’t” went ahead anyway and sold 30 million shares that did not exist. This was a gross violation of securities regulations that require traders to have “affirmative determination” that a stock can, in fact, be borrowed. Assuming the intent was to manipulate the stock, it is a jailable offense.

It is true that by mid-September of last year, Lehman was on the brink of bankruptcy. Partners backed out of deals and there was a run on the bank. But people got nervous and pulled their money only because hedge funds bombarded Lehman with rumors (which are currently the subjects of a federal investigation) while simultaneously naked shorting the stock to single digits.

In July of 2008, the SEC issued an emergency order designed to prevent just this eventuality. For a few weeks, the order stopped naked short selling of Lehman Brothers and 18 other big financial companies. At this time, Lehman was not on the brink of bankruptcy.

But in early August, the SEC lifted its order and Lehman immediately came under a massive naked short selling attack. On the day the SEC lifted the order, Lehman’s stock was trading at around $20. A few weeks later, the stock was worth around $3 – a fall of 85%.

Only after this precipitous fall did Lehman’s partners begin pulling their money, making bankruptcy inevitable.

But, apparently the Columbia Journalism Review believes that it is perfectly natural for a stock to fall 85%, even though no new information (aside from unsubstantiated rumors) had entered the marketplace. According to the Columbia Journalism Review (which has, no doubt, plowed Kingsford Capital’s money into a thorough investigation of this issue), it is perfectly natural that people who “found they couldn’t” borrow stock nonetheless proceeded to flood the market with 30 million phantom shares.

The truth is, that 30 million share “mechanical error” helped bring this nation to its knees.

That’s one reason why I do have a dog in this fight.

* * * * * * * *

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