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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 12 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 12 of 15)



What follows is PART 12 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

Click here to read PART 10

Click here to read PART 11

Where we left off, we had learned that on March 29, 2007, an FDA advisory panel voted overwhelmingly to recommend approval of Provenge, Dendreon’s promising new treatment for prostate cancer. As a result, most financial analysts and investors expected that Dendreon would have  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 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 new treatment for prostate cancer.

We had learned further that Milken’s “philanthropic” outfit, the Prostate Cancer Foundation, seems largely to be an extension of Milken’s investment fund, ProQuest. This might explain why the Prostate Cancer Foundation endorsed and provided financial support to Novacea and Cougar, neither of which had shown that their treatments were safe or effective, while snubbing its nose at Dendreon.

In addition, we had learned that in April, 2007, an FDA-contracted physician, Dr. Howard Scher, who was also an executive and director of Milken’s ProQuest Investments, and the chairman of Milken’s Prostate Cancer Foundation “Therapeutic Consortium”, spearheaded an unprecedented lobbying effort to undermine the prescribed regulatory process and convince the FDA to deny approval to Dendreon — the first time in history that the FDA went against an advisory panel’s recommendation to approve a drug destined for dying patients.

In the days before and after the lobbying effort, Dendreon was 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 other events conspired to hobble Dendreon, a company that had completed multiple clinical trials that strongly suggested that its product, Provenge, was capable of lengthening the lives of tens of thousands of men with prostate cancer….

* * * * * * * *

“Black Wednesday at the FDA.”

That is how Dr. Mark Thornton, a former medical officer in the FDA’s Office of Oncology Products, described the FDA’s decision not to approve Dendreon’s Provenge.  In an op-ed for the Wall Street Journal, Dr. Thornton described vaccines such as Provenge as the “Holy Grail of cancer treatment.”  Without directly referring to anyone by name, Dr. Thorton described Dr. Scher’s lobbying effort as “arrogant” and “unprecedented.”

Dr. Thornton added that when the FDA succumbed  to that lobbying, “the dawn of a new era in cancer immunotherapy was driven back into the night. It will be years before we know the full impact of these decisions and how many cancer patients…have had their lives cut short as a result.”

This scandal infuriated many other physicians and patient advocates (with  the exception of those affiliated with Milken’s Prostate Cancer Foundation). Some Dendreon supporters took to the streets.

On June 2, 2007, there was a protest in front of the American Society of Clinical Oncology. Two days later, several prostate cancer advocacy groups rallied in Washington. On June 6, there was yet another protest, this one attended by still more physicians who demanded to know why the FDA had failed to approve Dendreon’s treatment.

“I’d like to explain in the most basic of terms,” said Dr. Mark Moyad of the University of Michigan medical school, at the June 6 rally. “We think a mistake has been made. We are here in a friendly way to start the process of correcting that mistake.”

That word — “friendly” – seems to me to perfectly describe Dendreon’s supporters. I might add  “intelligent,” and “fair,” and “engaged.”  But the mainstream media played its customary role by portraying such advocates as vexatious wackos (notwithstanding the fact that many of Dendreon’s supporters were respected physicians).

“Oncologists do not usually need bodyguards…” began a story in the Washington Post, which was all about the Dendreon “controversy.”  The gist of this story was that people advocating for prostate cancer patients might somehow be dangerous – that it was strange how vocal they were, it was strange that they used the Internet to get the word out – and Dr. Scher (the physician who helped derail Dendreon) feared for his safety. He had even received some “threats.”

Nowhere in the story was it suggested that a great many prominent doctors were saying that the FDA had made a “mistake” in failing to approve Dendreon’s application. Nowhere was it mentioned that Dr. Scher played a significant role in engineering this “mistake.”  And nowhere was it mentioned that Dr. Scher was egregiously conflicted due to his financial ties to Michael Milken’s investment fund and Dendreon’s competitors, Novacea and Cougar Biotechnology.

Essentially identical stories appeared in the Philadelphia Inquirer, the New York Times, the Boston Globe, the Seattle Times, and on CNBC. Every one of these media outfits portrayed Dendreon’s supporters as potentially dangerous lunatics. Every one of them stated unequivocally that Dr. Scher had been “threatened.”  Yet, not one of them specifically described the threats, and as far as I can ascertain, there were no “threats.”

Clearly, there was a new party line – Dr. Scher was the victim. Given the near verbatim repetition of this party line in so many newspapers, and given my experience working in the mainstream media, I can say with near certainty that this was the work of an orchestrated public relations campaign – a campaign to distract attention from what was really happening to Dendreon.

Meanwhile, Dendreon remained one of the most manipulated stocks on Nasdaq. On the day that the Washington Post story appeared, SEC data showed that criminal naked short sellers had sold, and failed to deliver, more than 13 million Dendreon shares. Following the mainstream media’s standard operating procedures, no mention was made of this phantom stock in any of the stories on Dendreon’s troubles.

* * * * * * * *

By June of 2007, Dendreon’s stock price was averaging around $7 – down from its early April high of $25. There was no way the company could raise more money on the stock market, and so it had to significantly scale back its work on Neuvenge, a promising treatment that fought breast cancer in the same way that Provenge fought prostate cancer. In order to get enough cash to continue work on Provenge, Dendreon issued over $100 million worth of convertible bonds.

Sometimes, hedge funds that buy a company’s convertible bonds are well-intentioned – they want the company to succeed so that the company can repay the loan.

But, often, hedge funds that buy convertible bonds do not have the company’s best interests at heart. Indeed, Deep Capture has obtained an internal client presentation given by a well-known investment bank that states that the single largest segment of investors in convertible bonds are hedge funds that actually intend to increase their bets against the companies that they are financing.

A convertible bond is debt that can be “converted” into stock. A hedge fund lends a company, say, $100 million. As repayment, the hedge fund can either receive the $100 million plus interest at maturity, or instead it can receive, say, 10 million shares in the company.

If the share price is $8 at the time of the loan, those 10 million shares would be worth $80 million. But if the share price rises to $20, the hedge fund can convert his $100 million loan into $200 million worth of stock. If the hedge fund manager is a value investor who wishes the company well, he will make his loan and wait for the stock to rise.

But there are various ways that convertible bonds can be put to malevolent use. Suppose a group of hedge funds have launched a full scale short selling attack against a company, but the hedge funds want to short sell even more stock.  To do that legally, the hedge funds must first locate more stock to borrow, and then sell it. But sometimes there is simply no more stock available for short sellers to borrow.

Now, suppose the share price has already been significantly hammered, so the company can no longer raise money through the stock market. The hedge funds know this. And the hedge funds are important clients of an investment bank. So the hedge funds and the investment bank hatch a plan.

It works like this: the investment bank tells the victim company that it can resolve the company’s cash problems by brokering a convertible bond offering. If the company agrees, the investment bank says, “great, but there’s just one hitch – you, the company, have to lend us, the investment bank, the shares that the company would normally keep on hand in case the bond holders convert.

To assuage any fears, the investment bank might promise the company that it will not re-lend those shares to short sellers, but will merely sell them to long buyers – people who want to invest in the company. The company says, “fine,” and issues, say, $100 million worth of debt convertible to 10 million shares. The company also agrees to that “hitch” — so now the investment bank has wangled a “stock loan” agreement that gives it exclusive rights to borrow those 10 million shares until such time as the bond holders convert.

Meanwhile, the investment bank returns to that group of hedge funds, who agree to buy the convertible bonds as a means to extricating those 10 million shares from the company. Once the investment bank is in possession of those shares, it cannot (at least according to its agreement with the company) lend them to the hedge funds for purposes of short selling. But it can do one better. It can broker swap contracts that oblige counterparties to pay the hedge funds a certain amount of money in the event that the company’s stock price decreases in value.

Then, the investment bank dumps those 10 million shares into the market all at once, causing the stock price to further collapse. Meanwhile, the hedge funds and the investment bank might be engaging in naked short selling – selling stock that has never been borrowed by anybody (i.e. stock that does not exist).

If anyone asks about this illegal naked short selling, the hedge funds say they thought they had “a locate” on stock that they could borrow and deliver. If anyone asks the hedge funds to be more specific, the hedge funds say that they had “located” and planned to borrow those 10 million shares that the investment bank had borrowed from the victim company. If the SEC notes that the investment bank had an agreement not to lend those shares to short sellers, the hedge funds say they didn’t know about that.

Of course, the SEC rarely asks any of these questions, but the convertible bonds provide some immunity, just in case.

As the stock price hits rock bottom, the company depletes the cash it raised from the bond offering. And the only way for the company to receive new funding is to issue more convertible bonds to the hedge funds, or do one of those dreaded “death sprial” PIPE deals.

If this were a game of chess, it would now be “check” for the hedge funds. The company knows that its stock price and its financing depend entirely on the hedge funds, which are put in the position of being able to drive (and trade ahead of) the company’s business decisions. This scheme might even allow a set of hedge funds to take control of, say, a $700 million company, for a $100 million loan.

With the exception of the naked short selling, most of this scheme’s elements can be found in the standard PowerPoint presentations that some banks deliver to their hedge fund clients behind closed doors. The investment banks market the scheme as a way to profit from volatility in the stock. When the stock crashes, the hedge funds make money from the swaps and their short selling. If the stock subsequently increases in value, the hedge funds can convert their bonds and use some of the proceeds to pay the counterparties to the swaps.

But sometimes the hedge funds intend to fully destroy the company. They make plenty on their short positions and swaps, and their bonds pull in some money during the bankruptcy proceedings. Sometimes, during bankruptcy, the hedge fund lenders get their hands on company assets (such as blockbuster medical treatments) that are actually worth considerably more than what they spent on their bonds.

At other times, the ultimate goal is not to destroy the company outright, but to crash the stock, and then accumulate shares, giving the hedge funds still more influence over company decisions, and perhaps paving the way for a hostile takeover.

I do not know for certain the motivations of the hedge funds that bought Dendreon’s convertible bonds. I do not know if they engaged in naked short selling. After all, the identities of the naked short sellers and the real amount of failed trades they are generating are, as far as the SEC is concerned, still a big secret. Remember that the SEC says that releasing information about (illegal) naked short sales would reveal the (criminal) hedge funds’ “proprietary trading strategies.” And the SEC cannot have that.

I do know, however, that nearly every one of Dendreon’s convertible bond holders are connected in important ways to Michael Milken or the seven affiliated hedge fund managers who held large numbers of put options in Dendreon prior to the strange occurrences of March 2007. This raises the suspicion that the convertible bond holders were not typical investors (that is, investors who put in capital hoping that the company would prosper).

Instead, the fact that the buyers of the converts were part of the same network that was placing large bets against Dendreon (and taking steps, with help from Milken’s “philanthropy”, to derail Dendreon’s treatment for prostate cancer) raises the possibility that these bond investments were made as part of a strategy to manipulate Dendreon’s stock price down,  during which time members of this network would (with help from Milken’s Prostate Cancer Foundation) pump up the stock prices of Dendreon’s “competitors” – the companies controlled by Milken and his friends.

In the two years that these shenanigans were going on, 60,000 American men died of prostate cancer, which seemed to be of no concern to this particular network of miscreants. But once the competing, Milken-connected companies had been thoroughly pumped, and then dumped (on the news that their treatments were worthless), it would perhaps be time to exert greater control over the one company–Dendreon–that actually had a treatment that could extend lives.

As we will see, members of the Milken network – some of the hedge funds that bought the convertible bonds, and some of the seven hedge funds that were betting big against Dendreon in 2007 – have, as a group, recently become the company’s largest shareholders. Their precise intentions, however, remain a mystery.

While we do not have photo-perfect pictures of what was going on behind the scenes of Dendreon’s bizarre trading (the SEC does not let that get public), we do know that this paradoxical play of participating in a convertible bond in order to further a manipulative scheme against a company, is in fact a standard play on Wall Street. Given this, we would be remiss  not to name the colorful hedge funds that bought Dendreon’s convertible bonds.

* * * * * * * *

As we have covered, Milken crony Carl Icahn founded the options department at Gruntal & Company, which owed its existence to Michael Milken and was one of the more disreputable trading houses on the Street. Ultimately, Gruntal was found to have employed several traders with ties to the Mafia, and soon after, it was charged with a massive fraud and forced to pay what was then one of the largest fines in Wall Street history.

Many of Gruntal’s former employees ended up working for White Rock Capital, which was run by the alleged Russian mobster, Felix Sater, the fellow who was allegedly behind the threat to have Deep Capture reporter Patrick Byrne murdered if he did not end his crusade against naked short selling and the “deep capture” of important institutions.

As we also know, when Icahn left Gruntal, he handed over direction of the options department to Milken crony Ron Aizer. The first trader Aizer hired was Steve Cohen, who was reportedly investigated by the SEC for trading on inside information provided by Milken’s shop, and later became “the most powerful trader on Wall Street” — the fourth of those seven hedge fund managers prescient enough to bet big against Dendreon before Milken’s other cronies derailed the company in 2007.

The second trader hired by Aizer was a man named Andrew Redleaf, who later went on to co-found two hedge funds — Deephaven Capital Management and Whitebox Advisors.  According to a media account posted on Whitebox’s website, Redleaf’s family kept its investment accounts at Drexel Burnham Lambert, where Michael Milken was then running his stock manipulation and junk bond empire. Redleaf was recommended to Aizer by Andy Stillman, who was then managing Drexel’s propriety options trading.

In later years, Redleaf became well-known for investing in Sun Country Airlines in partnership with Tom Petters, who was recently arrested at gunpoint amid allegations that he had orchestrated a massive Ponzi fraud in cahoots with a fellow named Michael Catain. Catain’s father, Jack Catain, was a Genovese Mafia enforcer and loan shark who had been involved, along with Michael Milken, in ZZZZ Best, a fraudulent carpet cleaning company run by Barry Minkow.

Minkow was eventually imprisoned for the ZZZZ Best fraud, and when he was released, he began a career as a self-described “fraud investigator.” He works in partnership with Sam Antar, the convicted felon who masterminded a massive fraud in the 1980s at an appliance retailer called Crazy Eddie. Antar, who is close to Milken and his network (members of which once tried to help Antar seize control of Crazy Eddie) now spends most of his time on the Internet, smearing and threatening people who work to expose the crime of naked short selling.

For example, Antar once posted on the Internet the names and address of Deep Capture reporter Judd Bagley’s young children. Antar writes with almost daily regularity that Deep Capture reporter Patrick Byrne is running a fraudulent company (Overstock.com), though he has produced nothing to support his claims, and every reputable person who has examined his arguments has concluded that they are absurd.

Meanwhile, Antar has littered the Internet with all manner of falsehoods about me—stating, for example, that I’m a drug addict and was fired from my last job. Ever the charmer, Antar has also let it be known that he is friendly with violent people, including those who once ambushed me, punched me in the face, and suggested that I should stop working with Patrick Byrne.

It is interesting to note that, these facts notwithstanding, in 2008 Fortune magazine saw fit to grace its pages with a highly flattering 2,738 word profile of Antar (“It Takes One to Know One”). Fortune did this even as it acknowledged that, “As would-be fraudbuster, Sam E. [Antar] has yet to notch his first kill. (Although in fairness he doesn’t hold himself out to be a full-time 10-Q detective. ‘I don’t have 40 people working for me like the SEC,’ he says.) He hasn’t brought any companies down or caused any regulators to open any investigations.”

That is, concerning a notorious swindler and convicted felon who threatens little girls, smears other journalists, is denounced by public officials, and who has not actually been the source of any credible investigation that Fortune can cite, Fortune published a perfectly complimentary puff piece.

As for the above-mentioned Andrew Redleaf, I noted that he is a founding partner in Deephaven Capital Management. In 2006, Deephaven was sanctioned by the SEC for short selling 19 public companies (almost all biotech firms) on inside information that his hedge fund colleagues were giving the companies “death spiral” PIPEs finance.

As you will recall, similar schemes have involved Milken crony Carl Icahn (the founder of Gruntal’s options department); Jeffrey Thorp (son of the Mafia-linked card counter who was the most important figure in Milken’s stock manipulation network during the 1980s); Milken crony Lindsay Rosenwald (who used to run the Mafia-linked D.H. Blair, the president of which was Milken’s former national sales manager); and Gryphon Partners (which was tied to the Mafia-linked, nine-fingered Anthony Elgindy, a naked short seller who is now serving an 11 year sentence for stock manipulation schemes and bribing two FBI agents).

My apologies for the repetition, but there are some who are new to this, and it is difficult for even the well initiated to keep track of so many miscreants, so permit me to remind the reader that Gryphon’s founder and Lindsay Rosenwald were among the seven colorful hedge fund managers who bet big against Dendreon in March 2007, just before the company was derailed by strange occurences engineered by Milken’s cronies. Also among those seven hedge fund managers was Steve Cohen, who was, earlier in his career, investigated for trading on inside information provided by Milken’s shop, and was the first trader hired at Gruntal by Milken-crony Ron Aizer.

Andrew Redleaf, the second trader hired by Aizer at Gruntal, is, remember, not just a co-founder of Deephaven Capital (sanctioned for short selling on inside information that companies were to receive dubious financing), but also the proprietor of Whitebox Advisors.

And Whitebox Advisors is among those hedge funds that bought convertible bonds issued by Dendreon, a company that suffered a two-year, sustained naked short selling attack while trying to bring to market a treatment for dying cancer patients.

* * * * * * * *

A hedge fund called DKR Management also bought convertible bonds issued by Dendreon. DKR was founded by Barry L. Klein and Gary S. Davis. Previously, Klein worked for Michael Milken as the President of Drexel Burnham Lambert Trading. Davis also worked for Milken at Drexel.

In later years, Klein and Davis founded the predecessor to AIG Trading Group, a unit of American International Group. AIG Trading Group was later run by Joseph Cassano, who had also been a Milken employee at Drexel.

While at AIG, Cassano sold tens of billions of dollars worth of credit default swaps (contracts that pay out if a company defaults on its debt) to hedge funds and investment banks.

Rolling Stone magazine’s Matthew Taibbi, who is one of the mainstream media’s finest journalists, was among the first to establish that AIG Trading Group and Milken crony Cassano destroyed AIG, which ultimately had to be nationalized by the U.S. government – greatly contributing to the collapse of the financial system last fall. Since then, several reports have also implicated Cassano’s Milken-tied predecessors, Klein and Davis.

Meanwhile, various government investigations are seeking to know whether short sellers acquired and manipulated the prices of AIG’s credit default swaps as a way to weaken their target companies – including Lehman Brothers and Bear Stearns.  The question that remains unanswered is whether the short sellers that bought credit default swaps from Milken cronies Cassano, Klein and Davis were also members of the Milken network (which would mean that some members of the Milken network wrecked the world while the other members of the network bet that they would).

Another highly significant factor in the collapse of the financial system – as can be discerned from statements by countless officials and by reports in virtually every newspaper in the land, though the newspapers seem content not to investigate the matter or state this explicitly – was the naked short selling of AIG, Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, and hundreds of other companies.

In the years leading up to the financial cataclysm (and during the time when Dendreon was under attack by naked short sellers), certain hedge funds orchestrated an effective public relations campaign aimed at covering up the crime of naked short selling. As part of this public relations campaign, the hedge funds would regularly trot out a certain Yale professor, who would do his utmost to defend the criminals.

This professor’s favorite stratagem was to divert discussion away from illegal naked short selling, and repeat, over and over, that legal short selling was good for the markets–a fact that was never in dispute. The professor’s capacity for obfuscation was unmatched, but he nonetheless became a favorite source for some members of the media. He appeared regularly on CNBC and was quoted in dozens upon dozens of articles – all of which communicated the non sequitor that illegal naked short selling is not bad for the markets because legal short selling is good for the markets. Of course, this is like arguing that sexual harassment is not bad because sex is good.

The name of this professor is Owen Lamont. To this day, the professor is still sought out by the press, which dutifully regurgitates his baloney. But the professor does not work for Yale anymore.

Now he works for the above-mentioned DKR Management, one of the Milken-connected hedge funds that bought Dendreon’s convertible bonds while Dendreon was brutally attacked by criminal naked short sellers.

* * * * * * * *

There are interesting stories to be told about most every hedge fund that bought Dendreon’s convertible bonds. One of them, Eagle Rock Capital, run by an Iranian fellow named Nadir Tavakoli, was once a controlling investor in the International Fight League, a promoter of ultimate fighting matches. The other controlling investor in the International Fight League (which went bankrupt amidst allegations of ultimate fighting’s connections to the Japanese Yakuza and stories that fighters were committing suicides and murders at alarming rates) was a “Russian whiz kid” (according to the media) named Dmitry Balyasny.

The first things to know about Dmitry Balyasny are that he is closely affiliated with Steve Cohen and he is the seventh of those seven hedge fund managers who were betting big against Dendreon by holding put options on the company’s stock, after the FDA advisory panel had recommended that Provenge be approved, and before Milken’s cronies successfully lobbied the FDA to ignore that recommendation. So I will return to Balyasny soon.

But first, let’s continue with our list of hedge funds that held Dendreon’s convertible bonds.

One was GLG Partners. As we know from emails acquired in a lawsuit, GLG Partners received updates on Steve Cohen’s attack on Canadian insurer Fairfax Financial, so it would be unsurprising if GLG was also clued in to Cohen’s attack on Dendreon.

Recall also that (shortly before GLG bought Dendreon’s convertible bonds) French authorities fined GLG  for being part of an insider trading ring that included UBS O’Conner (a unit of UBS investment bank, which, until March, 2007, was led by former Milken employee Ken Moelis) and Meditor Capital, a hedge fund (also, of course, with ties to Steve Cohen) that had just made a large investment in Novacea, the prostate cancer company that was then being promoted (by Milken’s fund and Milken’s “philanthropy”) as a competitor to Dendreon. In short, GLG was “in the mix.”

Another outfit that bought lots of Dendreon’s convertible bonds (shortly after it was caught running an insider trading ring with Meditor and GLG Partners) was…UBS O’Conner.

Then there was Quattro Partners, which bought Dendreon bonds convertible into a more than a million Dendreon shares. The founding partner of Quattro is named Michael Baldock. He had a long career in biotech investing after spending time as an investment banker at Michael Milken’s Drexel Burnham Lambert.

* * * * * * * *

Another of the big investors  in Dendreon’s convertible bonds was Forest Investment Management, a hedge fund controlled by a man named Michael Boyd. Prior to founding Forest, Boyd was a partner in an outfit called Forum Capital Markets. Boyd’s co-founder in Forum was C. Keith Hartley, yet another of Milken’s disciples from Drexel, Burnham Lambert.

Boyd was also the co-founder of a brokerage called McMahan Securities. One of his partners in that operation was Santo Maggio, who later became chief executive officer of Refco Securities, the brokerage that was allegedly processing the phantom stock sales of Rhino Advisors, which illegally naked shorted companies after providing them with finance brokered by Milken crony Carl Icahn’s Ladenburg Thalmann. When Refco was found to be fraudulently hiding $400 million worth of liabilities (liabilities that many believe were related to naked short selling), Maggio pled guilty to two counts of securities fraud, one count of conspiracy, and one count of wire fraud.

Another of Michael Boyd’s many accomplishments is his son, Roddy. Refco employed Roddy as a trader, perhaps as a favor to his father’s former partner, the criminal Santo Maggio.

But Roddy soon abandoned the securities business to become a business journalist – first at the New York Post and now at Fortune magazine. Roddy Boyd is a key figure among the small coterie of journalists who turn up repeatedly in Deep Capture‘s analyses.

Like all members of the coterie, Roddy has spent several years trying to cover up the naked short selling scandal, ridiculing anyone who mentions the crime or the remarkable coincidence of companies appearing on the Reg Sho list (the SEC’s list of companies suffering from naked short selling) when those companies are the targets of a select group of hedge funds whose names will be familiar to the reader who has made it this far.

In addition to covering up naked short selling crimes, Roddy writes hatchet jobs on the public companies targeted by this same select group of short selling hedge funds. The sources of the information in Roddy’s stories are, of course, the short sellers themselves, and most of the short sellers are, as has been explained over and over, tied to Michael Milken or his close associates.

For example, Roddy spent a great deal of time working with a soon-to-be arrested criminal named Spyro Contogouris, who had been hired by a subsidiary of Steve Cohen’s SAC Capital, to sabotage, harass, and trash Fairfax Financial.

As mentioned, we have obtained a great number of emails between Cohen, Jim Chanos of Kynikos Associates, and others in the network that was attacking Fairfax. In one email, hedge fund manager Chanos writes to journalist Roddy Boyd, “your courtesy was a boon to me. Thank you!”

With the exception of Roddy’s particular clique of journalists, it is not typical for reporters to receive thank you notes for the “courtesies” that they have extended to help hedge funds make money.

Another holder of Dendreon’s convertible bonds was CNH Partners, run by Todd Pulvino, who used to work for Grosvenor Capital. Grosvenor is managed by Scott Lederman, who was the grad school roommate of Steve Cohen and later the chief operating officer of Cohen’s SAC Capital. While Pulvino was presenting himself as a legitimate investor in Dendreon’s debt, was he in touch with Steve Cohen, who had bet big against Dendreon right before Provenge was derailed by the unprecedented lobbying effort of Milken’s other cronies?

We can’t say. And we can’t say who was illegally naked short selling Dendreon’s stock. That, remember, is a big secret – “proprietary trading strategies.”

* * * * * * * *

On October 12, 2007, Dendreon, still desperate for capital to continue clinical trials that might eventually help its cancer treatment receive FDA approval, signed the paperwork on its first PIPE deal. A dreaded PIPE – the sort of deal that dilutes equity and tends to attract naked short selling that sends a company’s stock into a “death spiral.”

The provider of this PIPE finance was the Azimuth Opportunity Fund, managed by an outfit called Acqua Wellington Asset Management.

Acqua Wellington is controlled by a “prominent” investor named Isser Elishis. In an otherwise flattering article, Herb Greenberg – a journalist whose entire career was devoted to granting “courtesies” to hedge funds in the Milken network – described Elishis as the “banker of last resort.”

Herb, who disappeared from public sight after he was exposed by Deep Capture,  now owns a company that ostensibly sells financial research to hedge funds in the Milken network (or, arguably, merely receives payment from them for the extensive string of “courtesies” that Herb extended while working as a journalist).

Among Azimuth’s first forays into the markets was an investment in a company called SulphCo, which claimed to have a method for turning sulphrous crude into clean-burning oil. Elishis collaborated on this deal with SulphCo’s principal investor, Zev Wolfson, who, you will recall, was the investor who financed Milken cronies Carl Icahn, Saul Steinberg, John Mulheren, and various brokerages tied to the Mafia, naked short selling, or both.

SEC data shows that on the day that Dendreon signed its PIPE deal with Azimuth, naked short sellers flooded the market with more than 2 million phantom shares. During the following week, more than a million Dendreon shares “failed to deliver” every day, despite (or perhaps because of) the news that Dendreon had enrolled 500 patients in a trial to confirm its earlier positive results, putting Provenge back on the track to FDA approval.

* * * * * * * *

In the late 1980s, a fellow named Jeffrey Yass and his two friends, Eric Brooks and Kenneth Brodie, set up a partnership to place bets at horse racing tracks across the country. On one single day at Sportsman Park in Chicago they pulled in winnings of more than $600,000. This seemed somewhat excessive, so Sportsman Park banned the three friends from its premises. The punters filed a lawsuit claiming that Sportsman Park had violated their rights to visit a public facility.

At any rate, Jeffrey Yass and Eric Brooks eventually abandoned the business of betting on horse races and instead pursued careers on Wall Street. Now they are “prominent” investors, the proprietors of a mid-sized investment and trading house called Susquehanna International.

In the spring of 2008, Susquehanna was introduced to Dendreon by a placement agent, Lazard Capital Markets. It is not clear why Dendreon would want to do business with Lazard. After all, Lazard was home to the singing Joel Sendek, who had been busily trashing Dendreon in his research reports.

Sendek had also been trumpeting Dendreon’s competitor, Cougar Biotechnology, as the next big thing in cancer treatment. In turn, Cougar Biotechnology (the company then controlled by Milken crony Lindsay Rosenwald, formerly of the Mafia-affiliated pump-and-dump shop D.H. Blair) had been quoting Sendek in its SEC filings.

Sendek’s endorsement, Cougar seemed to be suggesting, was evidence that the company was making progress toward bringing its prostate cancer treatment to market. This was odd, because most pharmaceutical companies use data collected from clinical trials to demonstrate this, not quotes from singing Wall Street analysts.

Meanwhile, it was widely understood that Lazard’s stock loan department was one of the go-to shops for hedge funds looking to short sell Dendreon’s shares. We cannot say that Lazard was loaning phantom stock to the short sellers (if it were, that would be a big secret), but Lazard’s coziness with short sellers ought to have given Dendreon pause.

There was also the fact that Lazard Capital had only recently been spun off from Lazard Ltd. Given that the two operations remained closely affiliated (sharing business and so forth), it might have been of some concern that the chairman of Lazard Ltd. was Bruce Wasserstein, a close associate of Michael Milken.

In “Den of Thieves,” James Stewart, the Pulitzer Prize winning author, quotes a criminal named Denis Levine as saying that Wasserstein was “owned” by Milken’s famous co-conspirator, Ivan Boesky. Given that Denis Levine was indicted for participating in Boesky’s insider trading schemes, one would think he knew of what he spoke, but there is no hard evidence to support his allegation.

In any case, Dendreon followed Lazard’s advice, and did a “registered direct offering” with Capital Ventures International, an affiliate of Susquehanna, the firm founded by Yass and Brooks. A “registered direct offering” is similar to a PIPE, the difference being that the securities sold to the investor are registered with the SEC and immediately tradable.

For most of March 2008, naked short sellers were failing to deliver less than 500,000 shares per day. As negotiations for the “registered direct offering” were underway, the amount of phantom stock gradually increased. And on the day the deal was signed, April 3, at least 1.6 million phantom shares had been sold into the market and remained undelivered.

For the next two months, more than one million Dendreon shares remained “failed to deliver” every day. This despite (or perhaps because of) the fantastic news, on March 12, 2008, that the FDA had agreed to an amended “Special Protocol Assessment,” which would enable the company to release, one year ahead of schedule, the results of an “IMPACT” trial that seemed likely to confirm the company’s Phase 3 trials showing substantial evidence that Provenge was safe and effective.

As Dendreon’s enemies must have known, it would soon be impossible to stymie the company with arguments about data, but stock manipulators were not yet ready to end their campaign against the company.

* * * * * * * *

To be continued….Click here for Chapter 13.

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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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Email Exposes Short Seller Plot to Destroy a Public Company


This is Part 3 of an ongoing series.

Read Part 1

Read Part 2

A few years ago, a clique of influential journalists went to extraordinary lengths to cover up the problem of illegal short selling. In the face of indisputable data and evidence, the journalists insisted, over and over, that “naked” short selling (hedge funds manipulating stock prices by flooding the market with phantom stock) rarely occurred. And they said short sellers (who profit from falling stock prices) don’t set out to destroy public companies.

Moreover, if a person were to criticize illegal short selling, the reporters would smear that person’s reputation with a savagery that was almost without parallel in contemporary journalism.

At the time, these journalists were working at major news organizations like The Wall Street Journal, The New York Times, and CNBC, but most shared a common history: they had been founding editors or top employees of TheStreet.com, a financial news website. The few who had not worked for TheStreet.com were close colleagues of TheStreet.com’s owner, Jim Cramer, who is best known as the eccentric host of CNBC’s “Mad Money” program.

Having studied more than 1,000 stories by these journalists, I can assure the reader that nearly every one of them was sourced from a tight network of hedge fund managers, and that a great many of the stories were false or misleading. Moreover, most of the people in this network (including Jim Cramer himself) are tied in important ways to two famous criminals from the 1980s – Ivan Boesky and “junk bond king” Michael Milken.

And though I realize that is hard for some people to absorb this, I will continue to provide evidence that a surprising number of the “prominent investors” in this network have had dealings with associates of organized crime – the Mafia.

* * * * * * * *

Last spring, we published “The Story of Deep Capture,” which sought to explain the origins of the Deep Capture website (mission: “to bypass the ‘captured’ institutions mediating our nation’s discourse”) by way of exposing the machinations of the Cramer clique of journalists and their short selling sources.

One day after we published our story, Cramer had some kind of awakening. Whereas he had previously sought to whitewash short seller crimes, he now suddenly repeated our assertion that illegal short selling was a big problem – the same problem that precipitated the great stock market crash of 1929.

A few months later, abusive short selling was implicated by U.S. Senators, CEOs of major banks, the U.S. Chamber of Commerce, respected academics, prominent law firms, current and past chairmen of the Securities and Exchange Commission, and then-Treasury Secretary Hank Paulson in the near total collapse of our financial system.

Nowadays, Cramer is even more adamant. He says he knows a lot of short sellers. He says that short sellers are destroying public companies. He says they crushed the markets and they’re going to crush America too.

These short sellers, Cramer hollers, are downright “diabolical.”

* * * * * * * *

If you have not done so, please read Deep Capture reporter Patrick Byrne’s primer on naked short selling. Please read “The Story of Deep Capture.”

Think about what Cramer has said.

And then have a look at the following email.

= = = = =Begin Message= = = = =

Message # : 727

Message Sent: 02/22/2006 08:57:48

From: AHELLER3@bloomberg.net|ANDY HELLER|EXIS CAPITAL MANAGEM

To: JONKALIKOW@bloomberg.net|JONATHAN KALIKOW|STANFIELD CAPITAL

Subject: CNBC – FAIRFAX

Reply:

He did this one time before, and the stock went down 3 on the open, then closed up 1. the way to get this thing down is to get them where they eat, like the credit analysts and holders. we’re taking this baby down for the count. ads and I are going to toronto in 2 weeks for a group lunch. J

= = = = =End Message= = = = =

* * * * * * * *

That email was authored by a top employee of Exis Capital, which is an offshoot of SAC Capital — said by some to be the most powerful hedge fund on Wall Street. We can’t be certain who, aside from the email’s author and “ads” (Adam D. Sender, head of Exis), attended that “group lunch.” But from other emails we know that a particular “group” of hedge fund managers did, indeed, intend to take “this baby down for the count.”

The “baby” was Fairfax Financial, a major, publicly listed insurance and financial firm.

The above email (acquired through discovery in Fairfax’s lawsuit against some members of the “group”) makes reference in the first line to journalist Herb Greenberg, who bashed Fairfax on CNBC, apparently causing the stock to go “down 3 on the open.” Other emails in our collection (we’ll publish a couple more of them) suggest that Herb’s reporting involved nothing more than contacting the “group” to find out what he was supposed to say.

* * * * * * * *

Herb took Fairfax “down 3 at the open” in February 2006, right at the time that Herb, a founding editor of TheStreet.com, received a subpoena from the Securities and Exchange Commission. TheStreet.com also got a subpoena. So did Jim Cramer, the owner of TheStreet.com. Short seller David Rocker, a member of the “group” and then the largest outside shareholder of TheStreet.com, got a subpoena too.

At the time, the commission had opened a formal investigation into Gradient Analytics, a financial research firm that stood accused by multiple former employees of manufacturing false “independent” research reports in cahoots with short sellers (namely, the “group”) and letting the short sellers trade ahead of the reports’ publication.

The “group” – which also included “prominent investor” Jim Chanos of Kynikos Associates – had a similar scam going with “independent research” firm Morgan Keegan. Deep Capture reporter Judd Bagley broke that story more than a month ago. Bloomberg News, which seems to be the only major media outfit willing to write critically about these “prominent investors,” picked the story up last week.

The Wall Street Journal published a major, front-page article that exposed the dubious tactics that Jim Chanos and affiliated short sellers used to demolish public companies.

But that article was published more than twenty years ago — in 1985.

Since then, the Journal has not published a single negative story about Chanos and his friends. It has not published a single investigative story about abusive short selling.

When David Kansas, a founding editor of TheStreet.com, was running The Wall Street Journal “Money & Investing” section, that part of the paper served as little more than a mouthpiece for Rocker, Cohen, Chanos and affiliated “prominent investors.”

But last week, even The Wall Street Journal had to acknowledge that Chanos is now the target of an SEC investigation.

* * * * * * * *

When the SEC issued subpoenas in the Gradient investigation, one former Gradient employee provided a sworn affidavit stating that Herb Greenberg held his negative stories so that David Rocker could establish short positions that would make money when Herb’s stories caused stocks to do such things as go “down 3 at the open.”

At the time, Jon Markman, a founding editor of TheStreet.com and later managing editor of MSN Money was running a hedge fund out of Gradient’s back office. Former Gradient employees said that Markman was also trading ahead of Herb’s negative stories and Gradient’s false negative information. If true, this would likely be illegal.

But SEC officials say that the investigation in February 2006 was aimed at bigger prey than just Gradient and a few journalists. The commission was aware that some “prominent investors” were, in the words of our email author, taking companies “down for the count.” Good people at the SEC (the rank and file) hoped to put a stop to this.

But when the subpoenas were issued, Herb, Cramer and others in their media clique went berserk. They said journalists don’t have special relationships with short sellers. They said short sellers don’t destroy companies. Cramer famously vandalized his government subpoena – live on CNBC.

Under this “media” pressure, the SEC chairman announced that it would not enforce the subpoenas. Later, the SEC dropped its investigation altogether.

In an interview with Bloomberg News about the decision not to enforce the subpoenas, SEC attorney Kathleen Bisaccia said this: “To have the chairman publicly slap us in the face for doing our jobs – that really crushed the spirit of a lot of people for a long time.”

Indeed, former SEC officials say that this was a pivotal moment in SEC history. With morale sapped, the commission all but ceased to function.

Certainly, it did not stop the short sellers who would soon begin efforts to take some of Wall Street’s biggest financial institutions “down for the count.”

* * * * * * * *

Herb Greenberg, the journalist who took Fairfax “down 3 at the open,” and who was alleged to have allowed at least one short seller in the “group” to trade ahead of his stories, now runs an “independent” financial research firm that advertises itself as “bridging financial journalism and forensic analysis.”

We believe that Herb receives the bulk of his income from the above-mentioned “group” and affiliated “prominent investors.”

* * * * * * * *

From the above email it is evident that in addition to working with corrupt journalists, the “group” sought to destroy Fairfax Financial by getting “them where they eat.” That is, the hedge funds sought to “take this baby down for the count” by cutting off the company’s access to capital.

Sometimes “prominent investors” will merely dish dirt to a company’s lenders. Other times, the schemes are more complicated, with investors in their network actually financing the company. This gives them access to inside information and (in the case of convertible debentures) to stock that can be lent to affiliated short sellers.

In other cases, “prominent investors” will buy the company’s debt, package it into “collateralized debt obligations” (financial weapons of mass destruction that were pioneered by Michael Milken’s team at Drexel Burnham Lambert), and then trade it in such a way as to make it seem as if the company is in trouble.

When the time is right, the “prominent investors” fob off the debt to some witless or compliant pension fund. Then they tell people that they’re no longer financing the company – the company’s been “cut off.”

Meanwhile, the company will be subjected to unbridled “naked” short selling – hedge funds illegally selling stock that they do not actually possess (phantom stock) to manipulate down the share price. (By way of example: when the above email was written, SEC data showed that millions of phantom Fairfax shares had been “failing to deliver” on a daily basis.

What usually happens is that legitimate lenders see the plummeting stock price. They see a supposed “financial partner” yanking credit. They see the negative media. They see the debt trading at disturbing prices. They have short sellers feeding them horrible news about the company.

The legitimate lenders know the news is false. They know the company is credit worthy. But the negativity itself becomes a liability. The falling stock price is a liability. The legitimate lenders get worried. They raise their cost of capital, or cut if off altogether.

And so the “baby” goes “down for the count.”

* * * * * * * *

Fairfax survived this onslaught. Other companies were not so lucky.

Last year, Bear Stearns, Lehman Brothers, and dozens of other companies all went bust in a similar pattern — waves of naked short selling slightly preceding false stories planted in the media and then, suddenly, a financial “partner” cutting off a source of capital.

That is, short sellers got these companies “where they eat.”

Did the short sellers “cause” these companies to collapse? If a sniper shoots at a man who is swimming in a dangerous ocean current, and the man drowns, we cannot say for sure that the sniper “caused” the man’s death. But we can say that shooting at struggling swimmers is a crime.

Which short sellers committed the crimes? Only the SEC and the FBI can tell us for sure.

But we know which “group” attacked Fairfax Financial. We know that this same “group” and affiliated “prominent investors” attacked the big financial companies that collapsed last year. And we know that the people in this “group” are not passive investors.

Rather, when they attack a “baby,” they seek to take it “down for the count.”

Given that the collapse of the financial companies caused an economic catastrophe that will wipe out the jobs and savings accounts of millions of Americans, it seems that the “group” and affiliated “prominent investors” warrant further attention.

* * * * * * * *

One “prominent investor” is Adam Sender, proprietor of Exis Capital, the hedge fund that employs the author of the above email. As you will recall, Exis is an offshoot of SAC Capital, which is managed by Steve Cohen – described by BusinessWeek magazine as “the most powerful trader on the Street.”

As I noted in my previous piece, a former Mafia soldier turned private investigator offered to have one of Sender’s business partners buried in the Nevada desert. Sender claims to have declined this offer, but an FBI recording (hear it again here) suggests that Sender paid more than $200,000 to that former Mafia soldier and that Sender intended to “fix” his business partner and somehow bring about a “doomsday.”

Sender also hired a thug named Spyro Contogouris to harass and threaten executives of Fairfax Financial – part of the “group” effort to take that “baby down for the count.” In upcoming stories, I will publish some of Spyro’s shocking emails. In one, he told an FBI agent that somebody was threatening his life. He claimed that it was lawyers working for Fairfax Financial.

But that claim seems somewhat absurd. Fairfax Financial is a Canadian insurance company run by a mild-mannered immigrant from India named Prem Watsa, who is known as “the Warren Buffett of Canada.”

Given that Spyro wrote his email shortly before he was arrested by the FBI agent, and given that this FBI agent was investigating the “group,” it is possible that Spyro either made up the story to solicit sympathy, or the “group” was threatening Spyro’s life to prevent him from testifying.

Either way, it says something about the state of the American media that this intrigue, involving a major financial firm and some of the nation’s most “prominent investors,” is not front page news.

* * * * * * * *

The recipient of the email promising to take Fairfax “down for the count” was Jonathan Kalikow of Stanfield Capital, a hedge fund specialized in the trading of collateralized debt obligations.

Jonathan is a member of the mighty Kalikow family. The patriarch of this family is “prominent investor” Peter Kalikow, who was one of the largest financial backers of the stock manipulation firm run by Ivan Boesky, the famous criminal from the 1980s.

But Peter Kalikow is perhaps best known as the former owner of The New York Post.

When Kalikow owned the Post, the newspaper’s fleet of delivery trucks was handed over to members of New York’s five organized crime families. With Bonanno Mafia soldier Richard “Shellack-head” Cantarella presiding over the delivery bay, guns and drugs were loaded into the Post’s newspaper trucks and transported throughout the city.

Indeed, the New York Post became one of La Cosa Nostra’s principal smuggling operations.

* * * * * * * *

The other members of the “group” — David Rocker, Steve Cohen of SAC Capital, Jim Chanos of Kynikos Associates, and Dan Loeb of Third Point – have been discussed at length on this website. In upcoming installments, I will tell you more about them and others in their network.

They are all “prominent investors.”

To be continued…

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked as an editorial page writer for The Wall Street Journal in Europe, a business correspondent for Time magazine in Asia, and as an assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University. Email: mitch0033@gmail.com

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Bernard Madoff, the Mafia, and the Friends of Michael Milken


In 2005, Patrick Byrne, the CEO of Overstock.com and future Deep Capture investigative reporter, began a public crusade against illegal naked short selling (hedge funds and brokers creating phantom stock to manipulate stock prices down). He said, over and over, that the crime was destroying public companies and had the potential to trigger a systemic meltdown of our financial markets.

Soon after, I began to investigate a network of short sellers, journalists, and miscreants. I concluded that many of the people in this network were connected to two famous criminals – “junk bond king” Michael Milken and his associate, Ivan Boesky. I also began taking a close look at the Mafia’s involvement in naked short selling.

In my last installment (click here to read), I described some of the strange occurrences that attended this investigation. Where the story left off, I’d recently been threatened in a bookstore, and then ambushed by three thugs who told me to stay away from this story. My unwitting employer had been bribed by short sellers, Patrick had been told by a U.S. Senator that his life was in danger, and a Russian matryoshka doll had appeared on the desk of an offshore businessman.

Inside this matryoshka doll was a slip of paper marked with the letter “F”…

* * * * * * * *

Soon after receiving the matryoshka doll, the offshore businessman invited Patrick Byrne to a greasy spoon diner in Long Island. Over the previous year, the businessman had provided Patrick with some information about the naked short selling scam, and the hope was that he might have something more to say.

But that day at the diner, all he had was a message.

“I’ll make this quick,” the businessman said, with two other witnesses present. “I have a message for you from Russia. The message is, ‘We are about to kill you. We are about to kill you.’ Patrick, they are going to kill you. If you do not stop this crusade [against naked short selling], they will kill you. Normally they’d have already hurt someone close to you as a warning, but you’re so weird, they don’t know how you’d react.”

In a later conversation with a colleague of Patrick’s the businessman said [verbatim]: “These things don’t happen to me anymore. I mean, I’ve been out of that world [the world of Mafia stock manipulation] for a dozen years or more. These…there are defined signals here that lead me to believe that they [the Mafia] have been disturbed. The only way they coulda been disturbed is if they own Rocker or if he is using them for leverage.”

Rocker. That’s David Rocker.

At the time, David Rocker was a “prominent” hedge fund manager specialized in short selling (betting that stock prices will fall). It was also the case that Rocker had spent the last couple decades insinuating to people on Wall Street that he was somehow tied to the Mob.

But Rocker was probably full of it. He didn’t have ties to the Mob. Perhaps he merely believed that his insinuations lent him a certain cachet.

* * * * * * * *

From 1973 to 1981, Rocker was a general partner in a short selling hedge fund managed by Michael Steinhardt, who is one of Wall Street’s most “prominent” investors, regularly hailed by The Wall Street Journal and CNBC as a genius and a font of wisdom.

Some years ago, Steinhardt belatedly acknowledged that he is the son of Sol “Red” Steinhardt, who was once a major player in the Genovese Mafia organization. Steinhardt, Sr. spent several years in Sing-Sing prison after a New York City prosecutor described him as the “biggest Mafia fence in America.”

Incidentally, experts concur that the Genovese Mafia family brought the Russian Mob to America.

* * * * * * * *

The largest investors in Steinhardt Jr.’s first hedge fund were associates of the Genovese Mafia (whose investments came in large sacks of cash), Marty Peretz (future founder, with Jim Cramer, of TheStreet.com), Marc Rich (future fugitive charged with tax evasion and illegal trading with Iran and Libya), and Ivan Boesky (later imprisoned on multiple counts, most of them involving stock manipulation schemes orchestrated with “junk bond king” Michael Milken).

By 1991, Steinhardt owned another hedge fund — JGM Management – with a “prominent investor” named James Marquez. The star employee at JGM was “prominent investor” Samuel Israel III.

A few years later, Israel and Marquez founded the Bayou Group, one of the biggest hedge fund frauds in history. A significant part of the Bayou fraud involved Israel “feeding” his investors’ money into a Ponzi scheme run by Robert Booth Nichols, who has been targeted by authorities as a business associate of the Genovese Mafia family.

When Israel was sentenced to prison last year, he briefly disappeared. His car was found on a bridge. Scrawled in the dust on the hood was a note: “Suicide is Painless.”

Authorities arrested Israel’s girlfriend, whom they suspected of harboring a fugitive. Shortly after, Israel rode a red motor scooter to a Boston police station and turned himself in. Apparently, he was not dead. He had tried to fool us.

Meanwhile, Israel had filed a lawsuit against Nichols, alleging that Nichols had ripped him off. Apparently, Israel (who could not be reached for this article) would like us to believe that he is not tied to Nichols or the Genovese Mafia.

Nonetheless, Israel has a certain cachet. So do Steinhardt and James Marquez.

* * * * * * * *

In the 1990s, Steinhardt founded another hedge fund, Steinhardt Partners. The co-founder and head trader of Steinhardt Partners was a “prominent investor” named John Lattanzio.

The limited public information about Lattanzio concerns a Russian prostitute.

Apparently, Lattanzio proposed marriage to the prostitute and gave her a diamond ring. Alas, the couple separated, and Lattanzio asked for his ring back. After all, it had cost him $289,275.00.

But the prostitute seemed to believe that the ring was payment for services rendered. The dispute ended up in court, where the prostitute testified that Lattanzio had told her that he had ties to the Mafia.

Yes, said the prostitute, Lattanzio (Steinhardt Partners’ co-founder and head trader) had big-time Mafia connections, and he “would not hesitate to use them to harm me.”

From what I know of Russian strumpets, there is at least one area where they cannot be trusted – and that is where it concerns their love life. So perhaps Lattanzio had his heart broken. Perhaps, in the heat of passion, he said some crazy stuff about the Mafia to make himself seem dangerous. If that is the case, I send Mr. Lattanzio my condolences.

Indeed, I would enjoy meeting him. He has a certain cachet.

* * * * * * * *

Rocker left Steinhardt’s hedge fund in 1981 and went to work for an investment management firm called Century Capital Associates.

Information on this firm is limited, but it seems to have been largely owned in the 1980s by the Belzberg brothers — William, Sam and Hymie.

The Belzbergs were among Michael Milken’s closest cronies (family member Mark Belzberg was in fact implicated by the SEC in Milken’s stock manipulation schemes). They were at the inner core of the Milken machine – buying and selling the junk bonds of other Milken cronies. Often, the Belzbergs collaborated with Milken to blackmail, seize, or destroy public companies. .

In the late 1980s, the Belzbergs announced that they were going to take over Crazy Eddie, which was then a famous home electronics retail chain. The Belzbergs joined forces with Crazy Eddie’s founder, Eddie Antar, and the company’s chief financial officer, Sam Antar, in a supposed effort to take the company private.

This is a story for another time, but for now it suffices to say that Crazy Eddie was a massive fraud, the Belzbergs (and Milken) likely knew this already, and when the company was raided by the FBI a few months later, it emerged that Sam Antar had been feeding information to both the FBI and a lawyer, Howard Sirota, who was preparing to sue the company.

The Belzberg’s did not buy Crazy Eddie. Instead, just before the FBI arrived, the company was sold to another investor, Victor Palmieri. Robert A. Marmon, who was hired by Palmieri to run Crazy Eddie, told me that he arrived to find that the company’s top employees – the only people who had had direct access to the Antars – were all burly, armed thugs who claimed to be former employees of the Mossad, Israel’s secret intelligence agency.

It was Marmon’s job to fire the Antars’ corporate goons. “I’ve never been so scared in my life,” he said. “There weren’t any explicit death threats. They just stared you down, so you got the message.”

* * * * * * * *

Sam Antar is a convicted felon, but he never went to prison because he testified against his cousin, Eddie Antar, in return for house arrest. Now he is paid by short sellers with ties to David Rocker and associates of Michael Milken. The assignment to which he devotes the majority of his time is to use the Internet to harass and smear the reputations of Deep Capture founder Patrick Byrne and his colleagues.

At one point, Antar threatened the young children of Deep Capture reporter Judd Bagley, posting their names, ages, and address on the Internet. As I described in my last installment, Antar has made what I can only interpret to be veiled references to two seminal events in my life – the time I was ambushed and punched in the eye by three thugs, and the day that a goon in a bookstore threatened my close relative.

When he is not harassing us, Antar helps Howard Sirota (the attorney who sued Crazy Eddie) file bogus class action lawsuits against companies targeted by short sellers. A recent court case also describes Antar delivering $250,000 in cash to a man named Barry Minkow

In the 1980s, Minkow built a carpet cleaning and insurance restoration company called ZZZZ Best, with the bulk of his finance coming from Michael Milken, and other funds coming from associates of the Genovese organized crime family.

ZZZZ Best was a massive fraud that manufactured false restoration claims – some of them on Las Vegas casinos that had been financed by Michael Milken and investors tied to the Genovese organized crime family.

Minkow spent some time in prison. Now he runs an outfit called the Fraud Discovery Institute out of the Community Bible Church in San Diego, where he is a preacher. The Fraud Discovery Unit is in the business of publishing negative information about public companies targeted by Howard Sirota and short sellers tied to David Rocker, Michael Steinhardt, and associates of Michael Milken.

In one of Sam Antar’s famous Internet messages (he signs them, “Sam Antar, Convicted Felon”), he warned that we at Deep Capture were taking chances by writing about the Mafia connections of Barry Minkow, whom Antar described as his “friend.”

“You have awakened a sleeping giant,” Antar wrote.

* * * * * * * *

In addition to their involvement with Crazy Eddie and David Rocker’s operation, the Belzberg brothers – William, Sam, and Hymie – also tried in the 1980s to take over a investment services concern called the Bache Group. But executives of the Bache Group did not want the Belzbergs to seize their company.

According to the executives, the Belzbergs had ties to the Mafia. The executives went public with their allegations, citing, among other things, a U.S. Customs report that described the Belzbergs cavorting with some Genovese mafiosi in Acapulco.

Fortune magazine reported that these allegations were “unsubstantiated.”

But the Belzbergs have a certain cachet

* * * * * * * *

The Belzbergs were also the largest providers of capital to John Mulheren, a “prominent investor” who was famous in the 1980s for the arbitrage operation that he ran out of Spear Leeds & Kellogg, a broker-dealer and notorious naked short seller that was later merged into Goldman Sachs Execution and Clearing (which currently employs Elliot Faivinov, a Russian man who in 2006 was, for reasons of his own, receiving copies of the phone records of a woman who was then Deep Capture reporter Patrick Byrne’s girlfriend).

The Department of Justice alleged that Mulheren routinely engaged in stock manipulation schemes with Ivan Boesky, targeting companies financed by Milken. In 1987, when Boesky was indicted, and the government began to investigate Milken, Mulheren announced that he was going to murder Boesky.

Depending on the story, Mulheren either forgot to take his psychiatric medication, or he was worried that Boesky was going to squeal. Either way, he was arrested on the way to Boesky’s house. In Mulheren’s car, police found a 9-millimeter pistol, a .357 Magnum, a 12-gauge pistol-grip shotgun, a .233-caliber Israeli Galil assault rifle, and 300 rounds of ammunition.

It is a common misperception that Boesky’s testimony led to the 98-count indictment of Michael Milken. Considering the scope of business the two criminals did together, Boesky actually provided very little information to the government. He told prosecutors that he was afraid that he might be killed. On several occasions he told prosecutors that he might be killed by Milken’s “friends in Vegas.”

* * * * * * * *

Far more important to the government’s case against Milken was evidence that it obtained when 50 armed troopers stormed the offices of a hedge fund called Princeton-Newport. The founder of this hedge fund, Edward Thorp, once partnered with the Genovese organized crime family to develop a system for cheating Las Vegas casinos. He wrote a seminal book on counting cards in black jack, and soon after, he was a critical – perhaps the most critical – figure in the Milken operation.

The base of Milken’s operation was the high-yield debt department of Drexel Burnham Lambert in Beverly Hills. From there, he underwrote and sold billions upon billions of dollars worth of junk bonds. Hence the moniker, “the junk bond king.”

But most observers believe that Milken derived a greater part of his fortune from a web of private partnerships and personal brokerages that traded, and often manipulated, not just the debt, but also the stock of public companies. Most profitable of all Milken’s businesses were two Chicago-based brokerages – Belvedere Securities and EGM partners – that he co-owned with the Genovese Mafia card-counter Edward Thorp.

In 2006, Thorp’s son, Jeffrey, was charged by the SEC with destroying more than 20 companies in a scheme that involved unbridled naked short selling (millions upon millions of phantom shares sold into the market). Jeffrey Thorp also collaborated closely in short selling schemes with Anthony Elgindy, a notorious phantom stock peddler who is now serving an 11 year prison sentence for stock manipulation, extortion, and bribing FBI agents.

Elgindy, like Thorp’s father, is tied to the Genovese organized crime family.

When Elgindy appeared in court for sentencing, the judge noticed that Elgindy was missing the tip of one finger. Elgindy could not provide a straight answer as to what had happened, but a source close to the Elgindy investigation claims that Elgindy was forced by Russian mobsters to saw off his own finger as a warning not to squeal on his partners in crime.

* * * * * * * *

When delivering the death threat to Patrick Byrne, the offshore businessman mentioned David Rocker, and as we now know, Rocker was a general partner in Michael Steinhardt’s first hedge fund — largely capitalized by the Genovese Mafia and Ivan Boesky. We also know that Rocker later worked for Century Capital, largely owned by the Belzbergs – William, Sam, and Hymie – who might or might not have been cavorting with Genovese mafiosi in Acapulco, but were certainly the largest funders of John Mulheren.

After getting caught on his way to murder Ivan Boesky, Mulheren went to jail, where he spent most of his time in consultation with Anthony “Fat Tony” Salerno, a Genovese Mafia capo who had recently begun a 100 year prison sentence.

Upon his release, Mulheren (whose convictions were later reversed on appeal) went into business with a “prominent investor” named Israel Englander. Soon after that, Mulheren died (apparently of a heart attack), but Englander continued to manage Millennium Partners, a “prominent” short selling hedge fund whose major investors are the Belzbergs – William, Sam, and Hymie.

By this time, David Rocker had left the Belzberg’s Century Capital to start his own hedge fund – Rocker Partners.

* * * * * * * *

Here I must skip ahead more than a decade: In 2004, Deep Capture reporter Patrick Byrne (pursuant to his day job of being CEO of Overstock.com) was on a Lehman Brothers-sponsored road show seeing dozens of hedge funds, attempting to sell a $120 million convertible bond in Overstock. When he sat down in Millennium’s offices, a man entered. His opening words were, “Millennium wants to take the entire $120 million of this offering. Of course, we’ll need a board seat to go with that.”

This would have given the hedge fund access to inside information about Overstock. And it would have given Millennium the ability to sell the company short without borrowing shares in the open market.

This is a common strategy employed by short sellers tied to Michael Milken or his associates. As I will show in future stories, many companies that agree to this arrangement are eventually destroyed or seriously wounded by naked short selling – hedge funds offloading phantom stock.

Overstock board member Gordon Macklin, the former chairman of Hambrecht & Quist, a straight-shooting investment bank, warned Patrick not to do the deal with Millennium.

Millennium, after all, had a certain cachet.

Patrick declined Millennium’s offer, and went ahead with the offering to a number of hedge funds.

A few months after Millennium’s offer to acquire the bonds, affiliated hedge fund managers, including David Rocker, began a short selling attack on Overstock.

* * * * * * * *

One hedge fund closely affiliated with David Rocker is SAC Capital, which is managed by Steven Cohen, and is said to account for more than 3 percent of all the trading on the New York Stock Exchange. BusinessWeek magazine has described Cohen as “The Most Powerful Trader on Wall Street.”

Some years ago, there was an article by Fortune magazine called “The Shabby Side of the Street.” This article did not mention Steve Cohen. It did not mention him because, by this time, Cohen was a “prominent investor.”

But while “The Shabby Side of the Street” does not mention Cohen, it is all about Gruntal & Co., which is where Cohen spent his formative years. Cohen was a proprietary trader for Gruntal in the 1980s and early 1990s – up until the day when he founded SAC Capital.

Gruntal, we can assume, is where Cohen developed his network and learned the tricks that made him the “most powerful trader on Wall Street.”

Fortune magazine interviewed a former Gruntal employee, who described the ambience there: “Gruntal was the Island of the Misfit Toys. But they didn’t care what was going on in our sick, dysfunctional office as long as we were making money. We had no manager, and it’s illegal not to supervise brokers. I remember doing cartwheels down the hall, drinking beer at my desk, smoking pot, having sex in the stairwell. Whatever!”

* * * * * * * *

The Fortune magazine article about Gruntal also failed to mention Michael Milken. It did not mention Milken because Milken was, by then, a “prominent philanthropist.” But Milken had been intimately involved with Gruntal, whose parent company, a financial services and insurance conglomerate called the Home Group, had been central to the Michael Milken empire.

As nearly every account of Michael Milken’s schemes will tell you, Milken worked with a select group of cronies (many of whom controlled large insurance and financial services conglomerates) to operate what amounted to a Ponzi scheme.

The cronies would sell junk bonds through Milken to raise finance. Then the cronies would use much of this finance to buy (from Milken) the junk bonds of other cronies in the group. The cronies and Milken would then trade the junk bonds among themselves, raising their prices incrementally as they passed them on to the next crony (a process known as “daisy-chaining”), before fobbing them off to little old ladies and dimwitted pension fund managers.

Until the scheme collapsed, Milken’s junk-bond merry-go-round generated enormous profits and seemingly unlimited finance for his select cronies. So the cronies could not only buy more junk bonds from Milken, but they could also use their billions to harass, destroy, or initiate hostile takeovers of public companies.

Meanwhile, Milken presided over a nationwide network of private partnerships (such as those he had with the Mafia card-counter Edward Thorp), arbitrage and short selling partnerships (such as Ivan Boesky’s criminal operation), short selling hedge funds (such as Michael Steinhardt’s Mafia-funded outfit), and brokerages that could help put public companies on the defensive.

Home Insurance was a key buyer and issuer of Milken junk bonds. It was the second largest unsecured creditor to Milken’s operation at Drexel. It also owned about $15 million worth of Ivan Boesky’s short selling and arbitrage outfit. Meanwhile, Home’s subsidiary, Gruntal & Co., employed traders who were on quite friendly terms with Milken and others in his network.

* * * * * * * *

Gruntal’s options department was founded by a man named Carl Icahn. After leaving Gruntal, Icahn formed Icahn & Co., receiving most of his finance from Michael Milken, but also a significant chunk of capital from a “prominent investor” named Zen Wolfson.

Since then, Wolfson has been involved with a number of Wall Street brokerages that are tied to the Genovese Mafia. One such brokerage is Pond Securities, which, in 2001, was implicated by the SEC in a massive naked short selling (phantom stock) fraud. Among the victims of Pond Securities were companies that had employed the services of Ladenburg Thalmann, an investment bank largely controlled by Carl Icahn.

In an upcoming story, I will tell you more about Ladenburg Thalmann’s role in the naked short selling scandal. I will tell you more about Pond Securities and its relationship with a man who remains a fugitive in Austria. And I will tell you more about Carl Icahn, who is not only one of the most “prominent investors” in America, but also a man with a certain cachet.

* * * * * * * *

Another employee of Gruntal – a fellow who sat next to Steve Cohen (later known as “the most powerful trader on the Street”) – was Stephen Feinberg, who had moved to Gruntal from Michael Milken’s operation at Drexel Burnham Lambert. Feinberg had been one of Milken’s most favored employees. Most likely, he moved to Gruntal (“the “shabby side of the Street,” as Fortune magazine described it) to reinforce the relationship between Gruntal and Milken’s nation-wide stock manipulation network.

Nowadays, Feinberg runs Cerberus Capital, one of the most powerful private equity firms in America. In an upcoming story, I will tell you how Cerberus loots the companies it seizes.

Its techniques have a certain cachet.

* * * * * * * *

Yet another “prominent investor” who sat on Steve Cohen’s trading floor at Gruntal was Samuel Israel III.

Israel left Gruntal to work for a hedge fund owned by Steinhardt (the son of the “biggest Mafia fence in America”). As you will recall, Israel later wrote “Suicide is Painless” on his car and briefly disappeared after being sentenced for masterminding one of the largest hedge fund frauds in history – a fraud that Israel ran with help from a co-founder of Steinhardt’s hedge fund and another fellow connected to the Genovese Mafia.

Also on Steve Cohen’s trading floor at Gruntal was Maurice A. Gross, whose biggest client was Thomas Gambino, a prominent member of the Gambino Mafia family. This was in the days when the Gambinos and the Genovese still collaborated on Wall Street.

Gross later left Gruntal, and in 1997, he and a Pakistani fellow named Mohammad Ali Khan tried to steal the Gambinos’ money.

Fortunately, Elliot Spitzer intervened. At the time, Spitzer was New York’s attorney general. Throughout his political career, Spitzer received by far the greatest percentage of his campaign funding from short sellers (such as Jim Chanos, who provided a rent-free beach house to the hooker who later forced Spitzer to resign as governor) who are closely tied to Steve Cohen and SAC Capital.

Spitzer forced the former Gruntal broker to give the Gambinos their money back. There is no evidence, however, that Spitzer was concerned that New York’s second largest organized crime family was running money through a brokerage owned by cronies of Michael Milken and Ivan Boesky.

In 1996, Gruntal was charged with embezzling millions of dollars. By then, Steve Cohen had left to begin his career as the “most powerful trader on the Street.”

* * * * * * * *

So in 2006, I was investigating Steve Cohen’s SAC Capital, David Rocker, Michael Steinhardt and their network of miscreants. I was also investigating “prominent” journalists (at The Wall Street Journal, The New York Times, CNBC and other major news organizations) who had unusual relationships with this network and who were going to extraordinary lengths to cover up the naked short selling (phantom stock) scandal.

That’s when three guys in Armani suits saddled up to me in a quiet bar. As you will recall from my last installment, one of the Armanis introduced himself to me as a former Boesky employee, and told me a story about a fellow who got his brains blown out after “peeking” into the ladies underwear department at Saks Fifth Avenue.

Steve Cohen’s SAC Capital is known colloquially as “Sak.” I do not know for certain that Armani was telling me I shouldn’t be “peeking” at Cohen’s dirty underwear. It was a strange encounter, to say the least.

But if you doubt that journalists sometimes receive such threats, consider the case of Los Angeles Times reporter Anita Busch. One day after work, Busch found, in the front seat of her car, a dead fish and a rose. In the windshield of her car, there was bullet hole and a note that said, simply, “Stop!”

Later, the LA Times reporter was nearly killed when two men in a black Mercedes tried to run her over.

All of this was the handiwork of Anthony Pellicano, a former soldier in the Genovese Mafia organization who had found employment as a hired-thug and private investigator. Most of Pellicano’s clients had been Hollywood actors like Steven Seagal (who has been reported by some news organizations to have ties to the Mob, though I have not confirmed those reports) and various billionaires, a significant number of whom had ties to Michael Milken.

When Pellicano put the dead fish and the bullet hole in the reporter’s car, he was working for Michael Ovitz, the Hollywood mogul. Busch and the LA Times were investigating the business dealings of Ovitz, and Ovitz apparently hired the former Genovese Mafia soldier to stop the story in its tracks.

Ovitz, as you may know, is one of Michael Milken’s closest friends. They were high school classmates. In later years, Milken and Ovitz did a lot of business together.

While Pellicano was threatening an L.A. Times reporter, he was also employed by Adam Sender, who runs a hedge fund called Exis Capital. Sender is a former employee of Steve Cohen at SAC Capital. Steve Cohen — the “most powerful trader on the Street” — provided Sender with most of his start-up capital. Exis and Sender are considered by most everyone on Wall Street to be essentially subsidiaries of SAC (a.k.a. “Sak”).

Apparently, Sender had some kind of dispute with a business partner, so he called Pellicano, the former Genovese Mafia soldier. In a conversation that was recorded by the FBI, Sender said to Pellicano: “You have 100% free reign to do whatever you feel will make this cocksucker as unhappy as possible…I’d like to make the fucking asshole as uncomfortable as possible…I’m going to continue the lawsuit until doomsday… when the time is right I’m going to fix him.”

You can listen to the full conversation here.

In a later conversation, Pellicano allegedly offered to have Sender’s business partner disappear. The former Genovese soldier said he’d make his move while the business partner was driving to Los Angeles from Las Vegas. He’d force the business partner off the road. Then Pellicano would kill the business partner and bury him in the Nevada desert. Nobody would know a thing.

In court, Sender testified that he turned down Pellicano’s murder-for-hire offer. But Pellicano was convicted for multiple crimes – such as offering to have a man buried in the Nevada desert and putting a dead fish, a rose, and bullet hole in the car of a journalist investigating Michael Milken’s best friend from high school.

* * * * * * * *

I do not know whether any merit can be given to the offshore businessman’s speculation that Rocker might be “owned” by the Mafia. I do not know whether Rocker had anything to do with the message that the Russian Mafia was going to kill Patrick Byrne.

I do know, however, that in a later phone conversation, the offshore businessman explained how the death threat had been conveyed to him. He said he returned home one night and his wife told him there was a package on his desk. “And there was a beautiful little box, and inside was a matryoshka.”

“And I opened up the…matryoshka, and inside is an `F’ with a cross on it — which is from Felix.”

The businessman said he contacted Felix. And Felix said, “tell [Patrick]….we’re going to fucking take it private.”

* * * * * * * *

In 1998, Felix – that’s Felix Sater – forgot to pay the rent on a locker at the Manhattan Mini Storage in Soho. As a result, police found inside this locker two pistols, a shotgun, and a gym bag stuffed with documents outlining various money laundering and stock manipulation schemes orchestrated by Felix Sater and his partners.

Felix is a Russian immigrant said by authorities to have ties to both the Russian Mafia and the Genovese organized crime family.

In 1991, Felix stabbed a stock broker in the face with a broken stem of a wine glass.

* * * * * * * *

After reviewing the contents of Felix’s locker, the FBI launched a sweeping investigation that culminated, in the summer of 2000, with the bureau’s famous “Operation Uptick” – sometimes referred to as the “Mob on Wall Street” operation. More than 100 stock brokers and investors allegedly tied to the Mafia were arrested – the biggest securities bust in FBI history.

Among those arrested in the “Mob on Wall Street” operation were a number of people tied to Michael Milken or his closest cronies. One of them was Gene Phillips.

In the 1980s, Phillips ran a company called Southmark, which was at the center of the Milken Ponzi. Southmark was, in fact, the single largest real estate conglomerate ever financed by Milken. But it didn’t just buy real estate. In only one of many transactions, Milken delivered over $400 million in junk bond finance to Phillips, and Phillips used every penny of that finance to buy (from Milken) the junk bonds of other Milken cronies.

The “Mob on Wall Street” case alleged that Phillips engaged in stock manipulation schemes with a coterie of miscreants who were tied to the Genovese organized crime family. Ultimately, Phillips was acquitted.

But even before he was arrested, Phillips had a certain cachet.

* * * * * * * *

Felix Sater (the man who allegedly sent the matryoshka doll) was ultimately named as an “unindicted co-conspirator” in a Mafia-run stock fraud. One of his friends co-authored a book, “The Scorpion and the Frog,” which suggests that Sater (whom the author of the book gives a pseudonym, “Lex Tersa”) cut a deal allowing him to avoid prosecution if he helped the CIA set up a phony arms deal with Osama Bin Laden. Anything is possible, I suppose.

At any rate, Sater is now the (silent) proprietor of the Bayrock Group, a real estate investment company. The Bayrock Group has eleven partners. All are of interest, but let’s focus on two of them.

One is The Sapir Organization, which is an organization run by a Russian immigrant named Tamir Sapir. A lawyer for The Sapir Organization said the organization would answer no questions because the organization is “very, very private.” So information about Sapir’s background is spotty.

Sapir has stated publicly that he once owned a home electronics store that catered to Russian KGB officials living in New York. The name of the store remains a mystery. All Sapir has said is that he was “the Crazy Eddie of Russia” – a playful reference to Sam Antar’s electronics company (i.e., the massive fraud that the Antars were going to take private with those Milken cronies, the Belzbergs – Walter, Sam, and Hymie).

After electronics, Sapir began trading oil. Then he struck it big in real estate. Now, he is believed to be a billionaire.

He might also be a Russian Mafia boss. Journalists have danced around this issue. Sapir himself has stated to The New York Times that “I am not Mob.” But he once had Genovese Mafia associates running his real estate empire. So if Sapir is not a Russian Mafia boss, he is at least a Russian boss of Mafia employees.

By way of example: The man who formerly ran The Sapir Organization’s real estate portfolio is named Frederick J. Contini. In addition to being associated with the Genovese Mafia clan, Contini once entered a secret plea to racketeering.

Also, Contini once stabbed a man in the face with the broken stem of a wine glass.

He said it was just a bar fight.

This was some months after Felix Sater stabbed a man in the face with the broken stem of a wine glass.

Felix said it was just a bar fight, too.

* * * * * * * *

The second important partner of Felix Sater’s Bayrock Group is Apollo Real Estate Advisors, which is part of the empire controlled by a famous billionaire – Leon Black.

If Michael Milken were to name the ten people who are closest to him, Leon Black would surely be one of them. The two men have known each other since at least 1975, when “prominent investor” Carl Lindner, who was one of Milken’s key junk bond cronies, was acquiring shares in United Brands, formerly known as United Fruit, a company that has been accused of everything from bribing heads of state to funneling money to Latin American drug gangs.

Lindner eventually gained control over the company, but not before Eli Black — United Brands’ CEO and the father of Leon Black — crashed through a thick plate-glass window on the 44th floor of the Pan Am building, and plunged to his death.

They said Black broke through the plate glass window with his briefcase.

They said it was suicide.

* * * * * * * *

Some years after his father crashed through the window, Leon Black was heading up mergers and acquisitions at Drexel Burnham Lambert, home base of Milken’s junk bond operation. Black was Milken’s most ardent ally at Drexel. After Milken was indicted, Black rallied to Milken’s defense. It was Black, more than anyone, who prevented Drexel from firing Milken. And Black has remained obstinately loyal to the criminal Milken ever since.

After Milken went to prison, Black founded the Apollo Group, an investment partnership that received most of its initial funding from a French aristocrat named Rene Thierry Magon de La Villehuchet.

Among Black’s first moves as an independent “prominent investor” was to launch a takeover bid for Executive Life, a bankrupt insurance and financial services conglomerate.

The Black group won the bid after a fierce battle with a group of competing bidders, led by Jack Byrne, who was then the chairman of Fireman’s Fund, a major insurance company.

Later, though, it emerged that Black’s takeover of Executive Life had been illegal because he had secretly been fronting for certain French investors, including Monsieur Rene Thierry de La Villehuchet. Some of the French investors had illegally parked stock with Black to hide their involvement (“parking stock” being one of the favorite techniques of the Milken-Boesky-Thorp crew, and a recurrent theme in the 98-count indictment that sent Milken to jail).

There were indictments (though, somehow, not of Black or Monsieur Rene Thierry de La Villehuchet). After the indictments, Jack Byrne, recognizing that he’d been cheated out of a deal, sued Black and won an $80 million dollar judgment, some $30 million of which was ultimately paid to Jack Byrne’s company.

Jack Byrne, of course, is the father of Patrick Byrne, who a few years later received a vicious death threat, allegedly by way of a Russian matryoshka doll delivered by Leon Black’s Mafia business partner Felix Sater.

* * * * * * * *

None of which is to suggest that Black or Michael Milken had anything to do with the matryoshka doll or the death threat. Milken is now a “prominent philanthropist,” and Black is a “prominent investor.” But if anybody sees Mr. Black, please ask him if he thinks his Mafia friends could help us get to the bottom of this.

(Neither Black nor Felix nor Milken return my calls).

* * * * * * * *

Executive Life, the company that Black’s group illegally purchased, was in bankruptcy because it had been transformed into a Ponzi scheme by Fred Carr, who is widely regarded to have been Michael Milken’s single most important junk bond crony.

Milken delivered billions of dollars in junk bond finance to Carr, and Carr used much of his Milken finance to buy (from Milken) junk bonds that had been issued by Gene Phillips, the Belzbergs, Carl Lindner, and few others in Milken’s close circle of cronies.

Prior to destroying Executive Life, Carr was tied to a mutual fund company called Investors Overseas Services. Carr was a “feeder” (somebody who raised money) for Investors Overseas Services, and at one point he announced that he was a major shareholder in the company and planned to take it over.

Another “feeder” to Investor Overseas Services (OIS) was John Pullman, a reputed associate of the Genovese organized crime family. At one point, Canadian police taped a conversation in which Anthony “Fat Tony” Salerno (the fellow whom John Mulheren befriended in prison after failing to assassinate Ivan Boesky) suggested that Pullman owed him money.

There was also Sylvain Ferdman. He couriered cash to IOS from clients in South America. Ferdman testified before a grand jury in New York that he had also been a courier for the Genovese organized crime family.

* * * * * * * *

No story about Michael Milken is complete without reference to a “prominent investor” named Meshulum Riklis. By most every account, Riklis was Milken’s first big client and his most important mentor – the man who taught Milken the art of junk bond Ponzis and stock manipulation.

Riklis, who was also known as the husband of Hollywood starlet Pia Zadora, began working with Milken not long after Riklis bought Schenley Distributors, a distillery, in a deal that was clouded by accusations of pay-offs to organized crime. Schenley retained as its major distributors one Joseph Fusco, reputed to be a former member of Al Capone’s gang in Chicago, and Joseph Linsey, a colleague of the Genovese family mobster Meyer Lansky (who worked closely with Michael Steinhardt’s father).

Riklis’s next move was to buy the Riviera casino in Las Vegas. Reportedly, he was hand-picked for this deal by the sellers, a group of Mafia-affiliated characters led by Morris Shenker, who was the personal attorney, close confidant, and business partner of Jimmy Hoffa, the Mafia-connected president of the Teamsters.

One day, Hoffa had a meeting scheduled with Anthony “Tony Jack” Giacalone and Anthony “Tony Pro” Provenzano, two capos of the Genovese organized crime family. Hoffa disappeared on the way to the meeting and was never seen again.

By then, though, the Teamsters had become one of Milken’s most important customers –dependable buyers of junk bonds that Milken issued for select cronies – Riklis, Carr, Gene Phillips, Carl Lindner (who was acquiring United Brands when Leon Black’s father fell through a thick plate glass window), and just a few others.

* * * * * * * *

Through Riklis and the Teamsters, Milken built a solid clientele of Las Vegas casino operators, such as Carl Icahn, and related enterprises (such as the Genovese-financed ZZZZ Best carpet cleaning outfit).

One of Milken’s biggest clients was Steve Wynn, a “prominent investor” who received lots of Milken finance to open casinos and buy (from Milken) junk bonds issued by other Milken cronies – Lindner, Riklis, Gene Phillips, Icahn, and a just a few others (all of whom had a certain cachet – more on the others in upcoming stories).

Wynn is now widely credited with transforming Las Vegas into the kind of place where you can go with the kids.

Meanwhile, Milken describes Wynn as one of his closest friends.

In 1983, which is right around the time that Milken and Wynn began doing business together, the Criminal Investigation Department of London’s Scotland Yard produced a report stating that “the strong inference which can be drawn from the new intelligence is that Stephen Wynn…has been operating under the aegis of the Genovese [Mafia] family since he first went to Las Vegas in the 1960s…”

Scotland Yard determined that there was an especially strong relationship between Wynn’s father, Mike, and Genovese mobster Anthony “Fat Tony” Salerno. Around this time, the FBI caught “Fat Tony” on tape, in a conversation that suggested that the mobster had ties to the younger Wynn as well. Among other things, “Fat Tony” told his colleagues that they should try to get the younger Wynn to reign back his activities in Las Vegas. Wynn had become too conspicuous.

This was before “Fat Tony” entered into jail-cell consultations with John Mulheren, the Milken crony who had sought to murder Ivan Boesky. It was after “Fat Tony” was caught on tape describing his relationship with the “feeder” who worked with Milken crony Fred Carr on the Investors Overseas Services.

Wynn vigorously denies any connection to “Fat Tony” and the Mafia.

By the way, “Fat Tony” wore a fedora and usually had big Cuban cigar in his mouth. These people really do exist.

They have a certain cachet.

* * * * * * * *

Meshulum Riklis also denies having any connection to the Mafia.

But he does not deny that he at one point tried to buy Investors Overseas Services. This was right about the time that Milken-crony Fred Carr began buying up shares in IOS. It was also right about the time that Investors Overseas Services was found to be the biggest Ponzi fraud in history.

Soon after, Investors Overseas Services was handed over to a “prominent investor” named Robert Vesco, who looted it dry, and fled to Cuba.

* * * * * * * *

Investors Overseas Services was the biggest Ponzi scheme in history until last month, when Bernard Madoff’s Mafia-affiliated operation was revealed to be the new all-time biggest Ponzi scheme.

Investors Overseas Services was a straight-forward swindle. Bernard Madoff’s $50 billion Ponzi was more complicated, involving not just his fund management business, but also his brokerages.

Madoff’s brokerages engaged in naked short selling (offloading stock that had not been borrowed or purchased—phantom stock), likely on behalf of miscreant hedge funds looking to drive down prices. In fact, Madoff successfully lobbied the SEC to enact a rule that allowed market makers such as himself to engage in naked short selling. At the SEC, this rule was called “The Madoff Exception.”

Moreover, a source who has seen some of Madoff’s trading records says that Madoff filled buy orders for stock by naked short selling the stock to his customers’ accounts. So, perversely, significant buying volume through Madoff’s brokerages in a firm’s stock would generate yet more phantom shares, putting downward pressure on the price of that stock.

All of this naked short selling created massive liabilities (probably accounted for as “stock sold, and not yet delivered”). Those liabilities, plus the money that Madoff simply pocketed instead of buying or borrowing real stock, surely accounted for a large chunk of that $50 billion figure.

Last summer, naked short selling (phantom stock) burst into public view as an integral factor in the implosion of the U.S. financial system. In November 2008, former SEC Chairman Harvey Pitt, echoing the words of many other experts and officials, said, “Naked short selling is what’s causing a lot of the problems in the market.”

In other words, Madoff’s operation was not just the largest known swindle in history. It was also a phantom stock machine. And that makes it but one participant in a much bigger scandal — a crime that might have brought us to the brink of a second Great Depression.

* * * * * * * *

At any rate, historic achievements tend to have overlapping protagonists. So it was no surprise to learn that one of Madoff’s most important “feeders” was Fairfield Greenwich Group, part-owned by a “prominent investor” named Philip Taub. Philip’s father, Said Taub, a “prominent investor” from Europe, had been an important “feeder,” along with Michael Milken’s cronies and other people affiliated with the Genovese Mafia, for the Investors Overseas Services Ponzi.

Another Madoff “feeder” (and a partner with Madoff in a brokerage called Cohmad) was a “prominent investor” named Robert Jaffe. Previously, while working for E.F. Hutton, Jaffe ran money for the Anguilo brothers, the Boston dons of the Genovese organized crime family.

There was also Sonja Kohn, who was a “prominent” member of the Wall Street investment community before moving to Austria to set up Bank Medici, the primary purpose of which seems to have been to find Russian oligarchs and mafiosi (often one and the same) to participate in Madoff’s schemes.

According to The New York Times, Kohn has disappeared. She apparently told people that she feared that somebody would have her killed.

* * * * * * * *

And, finally, there is the sad story of the French aristocrat Monsieur Rene Thierry Magon de La Villehuchet.

As you will recall, this aristocrat almost single-handedly funded Leon Black’s Apollo Group. And you will remember that this aristocrat also played a key role in Black’s bid for Executive Life – a bid that turned out to be illegal, resulting in Black losing an $80 million lawsuit to the father of Deep Capture reporter Patrick Byrne.

In later years, this French aristocrat remained one of Leon Black’s most important business associates. He was a loyal friend – a committed member of the Michael Milken network – even after Black’s Mafia business partner Felix Sater threatened to murder Patrick Byrne (This according to the courier of that threat, who quoted Felix as saying, “we’re going to fucking take it private” if Patrick continued his crusade against illegal naked short selling.).

All of which makes it interesting to know that this French aristocrat also raised billions of dollars for the greatest Ponzi scheme the world has ever known – a Ponzi scheme that entailed illegal naked short selling that probably helped topple the American financial system.

That’s right, Monsieur Rene Thierry Magon de La Villehuchet not only provided most of the initial funding to Milken-crony Leon Black’s Apollo Group. He was also one of the most devoted “feeders” to the Bernard Madoff $50 billion phantom stock Mafia swindle.

And one day last month, police entered a luxurious office in a New York skyscraper. On the desk, there were pills (what kind of pills has not yet been revealed). On the floor, there was a box cutter. There was no note.

But there he was — Monsieur Rene Thierry Magon de La Villehuchet.

He was dead.

They said it was suicide.

* * * * * * * *

To be continued….

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked as an editorial page writer for The Wall Street Journal in Europe, chief business correspondent for Time magazine in Asia, and as an assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University.

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Strange Occurrences, and a Story about Naked Short Selling


Evidence suggests that Bernard Madoff, the “prominent” Wall Street operator and former chairman of the NASDAQ stock market, had ties to the Russian Mafia, Moscow-based oligarchs, and the Genovese organized crime family.

And, as reported by Deep Capture and Reuters, Madoff did not just orchestrate a $50 billion Ponzi scheme. He was also the principal architect of SEC rules that made it easier for “naked” short sellers to manufacture phantom stock and destroy public companies – a factor in the near total collapse of the American financial system.

* * * * * * * *

I don’t know why, but this seems like a good time to tell you a little about my personal history. Along the way, I’ll mention a murder, two suicides (or “suicides”), a punch in the face, a generous bribe, three Armani suits in bar, and a “prominent” billionaire who might know something about a death threat and a Russian matryoshka doll.

But actually, this story isn’t about me. It’s about Patrick Byrne, the fellow who got me into this mess.

* * * * * * * *

The story, like so many others, begins on August 12, 2005 – the day that Patrick Byrne, the CEO of Overstock.com and future reporter for Deep Capture (a leading investigative news outfit), delivered a famous conference call presentation entitled, “The Miscreants Ball.”

To the 500 Wall Street honchos who listened in to this conference call, Patrick said that a network of miscreants was using a variety of tactics – including naked short selling (phantom stock) – to destroy public companies for profit. He said this scheme had the potential to crash the financial markets, but that the SEC did nothing because the SEC had been compromised – or “captured” – by unsavory operators on Wall Street.

Patrick added that he believed the scheme’s mastermind — “just call him the Sith Lord” — was a “famous criminal from the 1980s.”

In January 2006, I was working as an editor for the Columbia Journalism Review, a well-respected ( if somewhat dowdy) magazine devoted to media criticism. Patrick had claimed that some prominent journalists were “corrupt” and were working with prominent hedge funds to cover up the naked short selling scandal, so I called to discuss.

Patrick picked up the phone and said: “Chasing this story will take you down a rabbit hole with no end.” He said that the story had it all – diabolical billionaires, phantom stock, dishonest journalists, crooked lawyers, black box organizations on Wall Street, and a crime that could very well cause a meltdown of our financial system.

Not only that, Patrick said, but “the Mafia is involved, too.”

Well, Patrick seemed basically sane. I decided to write a story about the basically sane CEO who was fighting the media on an important financial issue while harboring some eccentric notions about the Mafia.

I figured it would take a week.

* * * * * * * *

Months later, my desk was buried under evidence of short seller miscreancy, I had done nothing but investigate this story since the day I first called Patrick, and I had just gone to a topless club to meet a self-professed mobster who told me all about a stockbroker who had peddled phantom shares for the Russian Mafia and the Genovese organized crime family.

The stockbroker had taken a bullet to the head – execution-style. And the mobster said he knew who did it.

* * * * * * * *

By this time, Patrick had long-since amended his “Sith Lord” analogy to say that the short selling schemes probably had multiple masterminds with a shared ideology – “like Al Queda.”

Be that as it may, my investigation now had two areas of focus. The first was the Mafia. The second was a network of crooked journalists, investors, short sellers, and scoundrels – a great many of whom were connected in important ways to two famous criminals or their associates.

The famous criminals were Michael Milken and Ivan Boesky.

In the 1980s, Milken and Boesky were among the most “prominent” investors in America. They were also the main protagonists in what James B. Stewart, a Pulitzer Prize winning reporter for The Wall Street Journal, later called “the greatest criminal conspiracy the financial world has ever known.”

In 1989, Milken was indicted on 98 counts of securities fraud and racketeering. He did some time in prison. Upon his release, he revved up a public relations machine that was as effective as it was ruthless (Milken’s detractors had their reputations torn to shreds).

Nowadays, the press generally refers to Milken as a “prominent philanthropist.” Often, he is hailed as the “junk bond king” – a financial “genius” who “fueled economic growth” and “built great companies” by “revolutionizing” the market for high-yield debt (junk bonds).

Boesky, who helped Milken destroy great companies, was indicted on several counts of securities fraud and stock manipulation. After his release from prison, in the early 1990s, he reportedly went to Moscow to build relationships with the Russian oligarchs who were then looting the former Soviet Union.

After that, nobody heard much from Boesky.

* * * * * * * *

In the spring of 2006, I doubted that Milken or Boesky had committed any wrong-doing since the 1980s. But it was clear that many of the people in their network were up to their same old tricks – destroying public companies for profit.

I did not think that Milken or Boesky worked for the Mafia – that would be crazy. But it was clear that the Mafia was destroying public companies for profit. And it was clear that a surprising number of people in the Milken-Boesky network did have ties to the Mafia.

At any rate, the “prominent investors” in this network seemed to have many schemes.

Sometimes they seized a public company, fattened it with debt, stripped out its assets, pocketed its cash, and then killed the company off. This is what mobsters used to call a “bust-out.” In the old days, it was neighborhood wiseguys taking over local restaurants. In the 1980s, Milken and his crowd introduced the technique to the world of high-finance.

Other times, the “prominent investor” thugs acquired large stakes in a company. Then the thugs suggested to the company that they would go away only if the company were to buy back its shares at a hefty premium. In the 1980s, the Milken crowd referred to this as “greenmail.” Mobsters called it “blackmail” or “protection money.”

In still other cases, the “prominent investors” attacked the companies from the outside, employing tactics – threats, harassment, extortion – that seem straight from the Mafia playbook.

Whatever the specifics of the scheme, it was often the case that “prominent” short sellers who were tied to the “prominent investors” would eventually converged on the target companies and use a variety of equally abusive tactics either to destroy the companies or put them on the defensive.

While I do not have SEC data going back to the 1980s, the data for more recent years shows that most of the companies attacked by this network were also victimized by abusive naked short selling.

That is, somebody sold massive amounts of the companies’ stock and “failed to deliver” it for days, weeks, months – or even years – at a time.

* * * * * * * *

So back in 2006, I had begun to ask a lot of questions.

That’s when I had a strange encounter with three dudes in Armani suits.

The encounter occurred on a Thursday evening in a quiet, neighborhood dive bar, around the corner from my apartment, near Columbia University in New York – a neighborhood that does not often attract men in Armani suits. I was alone, having a beer and reading a book about Wall Street.

The Armani suits entered the bar and sat down next to me.

“Whatcha reading?” one said.

When I told him, he asked: “Anything in there about Ivan Boesky?”

“Yes,” I said, “he’s mentioned”

“Haven’t read it,” the man said.

He was silent for a few minutes. Then he laughed and announced that, by the way, he used to work for Ivan Boesky’s family. He said Boesky “is a real asshole – thinks he has so much money he can do what he wants. Hell, he might have killed people, for all I know…Heh.”

Armani shook his head. Then he said, “Hey, I got to tell you a funny story.”

This turned out to be a long and convoluted tale, the gist being that a fellow had wandered into the ladies underwear department at Saks Fifth Avenue. Apparently, this fellow thought it would be a good idea to peek into a dressing room where a lady was trying on a new pair of panties. But the lady’s husband caught the fellow and the husband happened to be packing some high-caliber weaponry, so he blew the fellow’s brains out, and now there was a big mess in the ladies underwear department.

“The guy was a pervert,” said Armani. “You know what I mean? There are some things you keep your nose out of. I would have killed the guy, too.”

With that, Armani stood up and said he was pleased to have met me.

I asked for his name. He said, “It’s John — John from Saks Fifth Avenue.”

And then he and his friends were out the door. The other two guys hadn’t said a word. None of them had bought drinks or shown any other reason for having entered the bar.

This occurred shortly after I began asking my first serious questions about Boesky. I had just met with a CNBC public relations man and I had told him that I was conducting a full-scale investigation of Boesky, and was interested in knowing more about Boesky’s ties to CNBC reporter Jim Cramer. I had determined that most of the journalists who were deliberately blowing smoke over the naked short selling issue were connected to Cramer. These included four of the five founding editors of TheStreet.com, Cramer’s online financial news publication.

Cramer, a former hedge fund manager, had planned to work out of Boesky’s offices in the 1980s. When Boesky was indicted, Cramer worked instead with Michael Steinhardt, whose biggest initial investors were Boesky, Marc Rich (later charged with tax evasion and illegal trading with Iran), Marty Peretz (co-founder, with Cramer, of TheStreet.com) and the Genovese organized crime family.

Steinhardt’s father, Sol “Red” Steinhardt, spent several years in Sing-Sing prison after he was a convicted by a New York prosecutor who described him as “the biggest Mafia fence in America.”

Also at this time, a central target of my investigation was a hedge fund called SAC Capital, colloquially known as “Sak.” That, of course, is somewhat different from “Saks Fifth Avenue.” It seemed doubtful to me that either Boesky or SAC Capital had sent the Armani-suits to threaten me.

Possibly, I thought, Armani had misrepresented his relationship with Boesky and Saks Fifth Avenue. Perhaps Armani worked for people who were concerned that I had begun investigating that execution-style murder.

Either that, or this was just one of those weird coincidences and there really was a former Boesky employee who’d found work in the brain-splattered ladies underwear department at Saks Fifth Avenue.

* * * * * * * *

My investigation continued and sometime later – on Halloween, 2006 – a guy sat down next to me at a book store. He said he’d seen me with one of my closest relatives (he was specific, but I’d rather not name the relative) and he thought I needed to be more concerned about the safety of this relative.

He said he didn’t mean to be intrusive, but he knew how hard it was to take care of relatives and he just wanted everyone to be safe.

Then another guy sat down at a nearby table, and slammed down a book. On the front cover of this book, in big bold letters, it said: “MAFIA.”

I became paranoid enough to retreat to the back of the book store. I told one of the clerks about the two guys, and I called some colleagues, who offered to send the police.

As soon as I hung up, one of the guys came up to me, smiled, and said he hoped that he hadn’t upset me. Then he left.

I told my friends not to call the police. It was probably just a strange coincidence.

Two years later, as my investigation deepened, I began receiving Internet messages from Sam Antar, a convicted felon who orchestrated the famous fraud at Crazy Eddie, the electronics retailer. In an upcoming story, I will describe Antar’s relationship with Michael Milken. I will also tell you more about the $250,000 in cash that Antar delivered to a Milken-funded entrepreneur who orchestrated a massive fraud with the Genovese organized crime family.

For now, though, I’ll just say that Antar’s messages to me have not been friendly.

In one, he wrote, “Mitchell: Do you remember what happened last Halloween?”

I had spent the previous Halloween interviewing Rotarians in Oklahoma about their Halloween canned food drive. The Halloween before that, I was in a book store where there was either a strange coincidence or a veiled death threat.

I sent Antar an email, asking what he meant. He did not reply.

* * * * * * * *

In November 2006, one of the hedge fund managers I was investigating appeared in my office and announced that he had become the primary financial backer of my department at the Columbia Journalism Review. Traditionally, the Columbia Journalism Review (a not-for-profit magazine) had been funded by large philanthropic foundations – not by hedge fund managers who were under investigation by the Columbia Journalism Review.

But now my salary would depend entirely on the beneficence of this hedge fund.

The hedge fund was called Kingsford Capital, and in upcoming stories, I will tell you more about this hedge fund.

I’ll tell you about Kingsford’s ties to naked short sellers.

I will tell you about the large sums of money that were offered to other journalists who had been working the naked short selling story.

I will tell you why it is significant that one of Kingsford Capital’s managers was Cory Johnson – a founding editor, along with Jim Cramer and the other dishonest journalists I was investigating, of TheStreet.com.

I will publish emails that shed light on Kingsford’s relationship with hedge funds that are tied to both SAC Capital and Michael Steinhardt, Cramer’s former office-mate.

In still other stories, I’ll tell you more about Steinhardt and his partners’ ties to the Genovese Mafia, Ivan Boesky, an angry Russian hooker, and a man who wanted the world to believe that he was dead.

I will also tell you about the former Genovese Mafia soldier who told a former manager of SAC Capital that he could make one of the manager’s business associates disappear in the Nevada desert. And I’ll tell you that the man who volunteered to commit this murder had once been hired to put a dead fish and a bullet hole in the car of a journalist who was investigating one of Michael Milken’s closest friends.

I’ll tell you all about it in upcoming stories.

But let me stress that I have no idea who was responsible for the strange things that occurred in 2006. That is to say, I know that Kingsford bribed the Columbia Journalism Review.

But as for the other strange occurrences – all I can say is that they were strange.

* * * * * * * *

Two days after I learned that Kingsford Capital and its cronies would be paying my salary while I finished my exposé on Kingsford Capital and its cronies, I had dinner with an economist who was exploring the naked short selling problem.

On my way home, I stopped in a café around the corner from my apartment. As I was putting on my coat to leave the cafe, a man grabbed me from behind and forcefully escorted me to the sidewalk. Outside, there were two more guys – not big guys, just regular looking fellows. They grabbed me, and the first guy delivered a single powerful punch to my eye.

I was stunned. When I finally held up my fists, the three men laughed and embraced me in a bear hug. Then they virtually carried me to the front stoop of my apartment, which was a block away. It seemed as if they knew that I lived there.

After brushing off my lapel, they said they were very sorry. They said they hoped I wasn’t offended, it wouldn’t happen again, but they were there for my own good – and, please, just “stay away from your Irish Mafia friend.”

Then they were gone. It all happened in about three minutes.

It occurred to me that this might have been just a random act of violence. It also occurred to me that the thugs might have bungled the message – that they had meant to say, “Just stay away from the Mafia and your Irish friend.”

Patrick Byrne (full name: Patrick Michael Xavier Byrne), with whom I was working extensively on the naked short selling story, is Irish. In interviews I had conducted for the story, many people had commented on Patrick’s Irishness. (In some Wall Street circles, it seems to be common for people to refer to others’ ethnicity – “Byrne, he’s an Irish guy, right?” or “The stock loan business, that’s the Italians.”)

In any case, I went to work the next day with a black eye. I said it was “just a bar fight.”

A woman in my office told me she thought it was “really cool” that I had been in a bar fight.

Later, Sam Antar, the convicted felon, posted an Internet message asking whether I “had ever been forcefully escorted out of a public building.”

As this had happened only once, I sent Antar an email asking if he was referring to the thugs who’d ambushed me in a café.

Antar did not answer my question. Instead, he quickly proceeded to write a blog saying that he had just received information that I had been “forcefully escorted out of the Columbia Journalism Review.”

* * * * * * * *

During the fall of 2006, Patrick Byrne had some strange experiences as well.

Somebody broke into Patrick’s home, and soon after, somebody broke into the home of a woman who was Patrick’s girlfriend at the time. Then somebody threw a pair of metal gardening shears through the window of the girlfriend’s restaurant.

Around the same time, Patrick’s then-girlfriend discovered that for some mysterious reason, her phone records were being sent to the home of a Russian man working for Goldman Sachs Execution and Clearing (formerly Spear, Leeds, and Kellogg – in its day, one of the most egregious naked short selling outfits on the Street).

I asked Goldman Sachs about this. I was told that the bank had investigated thoroughly and found no reason to believe that the Russian man, Elliot Faivinov, had obtained the phone records. (For anyone interested, the phone company can confirm that he did receive the phone records.)

At any rate, I have since learned that Goldman Sachs became a large donor to the Columbia Journalism Review sometime not long after Kingsford Capital announced that it would be paying my salary. Wall Street has never been so devoted to the dowdy world of media criticism.

As if all of this were not enough, one day in the fall of 2006, U.S. Senator Orrin Hatch invited Patrick to his home. As soon as Patrick entered the lobby of the apartment building, the Senator pulled him aside and said that he had credible information that Patrick’s life was in danger.

“You are up against some really nasty, vicious people,” the Senator said, “They will not hesitate to kill you.”

* * * * * * * *

Patrick kept on fighting.

As for me, I’d been investigating the Mafia, there’d been an execution-style murder, now there were these strange incidents, which might have been nothing, but getting beat up kind of freaked me out, and now I was staying up all night, squinting at my computer through my punched-in eye (which was black and blue, full of puss and swollen shut), trying to finish a story about a scandal involving the people who would now be directly paying my salary.

And so, maybe it isn’t all that surprising what happened next, which is that I snapped.

I couldn’t work anymore. I checked-out.

In the middle of November, a week or so after getting the Kingsford news, but still on perfectly good terms with my editors, I quit my job, and walked out the door.

Within a few days, I had shut down my New York apartment, and was on a plane to Chicago, where I planned to take some time off.

I had told my editor that I thought I might be killed. But I never specified, and I didn’t make an issue of the Kingsford Capital bribe until later. So I am hopeful that the good people at the Columbia Journalism Review never really knew that they were taking tainted money.

That said, my questions about this have gone unanswered.

* * * * * * * *

A few weeks later, Patrick accepted an invitation to meet an offshore investor in a greasy spoon diner in Long Island. They had never met, but over the previous year the man had fed Patrick bits and pieces of information about the workings of the phantom stock scam. The hope was that the man might have something more to say in person.

But that day at the diner, all he had was a message.

“I’ll make this quick,” the businessman said, with two other witnesses present. “I have a message for you from Russia. The message is, ‘We are about to kill you. We are about to kill you.’ Patrick, they are going to kill you. If you do not stop this crusade, they will kill you. Normally they’d have already hurt someone close to you as a warning, but you’re so weird, they don’t know how you’d react.”

In a later phone conversation with an associate of Patrick’s the man described how he received this message. He said he returned home one night and his wife told him there was a package on his desk. “And there was a beautiful little box, and inside was a matryoshka.”

Matryoshkas are those lacquered Russian dolls – the kind with multiple dolls of decreasing size inside of them.

“And I opened up the last matryoshka,” said the man, “and inside is an `F’ with a cross on it — which is from Felix…”

* * * * * * * *

A year later, I was working for a charitable service organization. Patrick called me to catch up. Pretty quickly, he was suggesting to me that I quit my job and return to the naked short selling story.

I thought about shopping the story around to magazines, but I never did. There was no way that the story could be told in a few magazine pages.

Moreover, the story represented the joint efforts of myself, Patrick, reporter Judd Bagley and many independent, volunteer researchers. This was an unprecedented collaboration, and it occurred to me that if this collaboration were to continue — as Deep Capture, the website — it could put the major news organizations to shame.

So I wrote the story – our story, filled with hard facts about a scandal.

The story that I wrote was not a magazine story. It was not a news story. It was 69 pages long, and it was “The Story of Deep Capture.”

But that was only half the story. There is much more.

For example, you do not yet know the name of the famous billionaire who might be able to tell us more about Felix, his matryoshka doll, the Russian Mafia, and the Genovese organized crime family.

* * * * * * * *

To be continued….

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He has previously held writing and editing positions with the Wall Street Journal editorial page, Time Magazine in Asia, the Far Eastern Economic Review, and the Columbia Journalism Review. Email: mitch0033@gmail.com

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

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Hedge funds reading tomorrow’s headlines today


ffh mk Hedge funds reading tomorrows headlines today

Fairfax Financial Holdings (NYSE:FFH) was first listed on the NYSE on December 20, 2002. During its first 15 trading days there, volume averaged well under 180,000 shares.

Then, on January 16, 2003 FFH volume exceeded 500,000 shares on an otherwise uneventful day in the life of a Canadian insurance company.

The next day, January 17, 2003 Morgan Keegan analyst John Gwynn initiated coverage of FFH with a scathing report and rating of “underperform”, making for one of the more eventful days in the lives of Fairfax shareholders, as their investments took heavy losses on extremely high volume.

Because information drives markets, one would expect to see extra activity in the wake of new information, such as that introduced by Gwynn on the 17th.

But what accounts for the unusually high volume observed the day before Gwynn’s report was published?

The answer to that question would come in October of 2008, when Morgan Keegan announced that Gwynn had been terminated for sharing his unpublished research on Fairfax with a small group of short-selling hedge funds.

Thanks to email messages and trading data recently obtained through discovery in the Fairfax Financial vs. SAC Capital, et al, lawsuit, we know that hedge funds Kynikos Associates, Third Point Capital, and SAC Capital all traded ahead of this material, non-public information. According to legal briefs filed by Fairfax Financial, Rocker Partners (later Copper River Partners) did as well (Rocker Partners denies this, while fighting manfully to prevent disclosing the trading records that would establish the truth, one way or the other).

Trading on material, non-public information, dear readers, is illegal.

In attempting to unravel how all this came about, one hedge fund name appears over and over: Kynikos Associates, run by James Chanos, who also serves as Chairman of the Coalition of Private Investment Companies, the hedge fund industry’s Washington DC lobbying organ.

It started on December 11, 2002 when Kynikos employee Mark Heiman alerted Chanos that he had just learned from an analyst at Ziff Brothers Investments that a Morgan Keegan analyst was about to publish a negative report on Fairfax.

From: Mark Heiman
Sent: December 11, 2002 11:06 PM
To: James Chanos; Douglas Millett
Subject: Fairfax
I just got off the phone with ZBI’s insurance analyst, Michael Ting. He just talked to a new insurance analyst at Morgan Keegan, and apparently that analyst is about to initiate FFRX at “Underperform,” with the thesis being that they are extremely under-reserved into the $3-$5 BN area. Also, there may be an article in Forbes or Fortune soon that will be similarly critical.
Ting said he thought that analyst was one of the best P&C analysts he has talked to, and wanted to give us the heads-up, as well as hear how we’re coming at it.

The next day, Kynikos employee Matt Cantrell apparently contacted Gwynn, as he sent Ting several documents relating to Fairfax subsidiaries, with the comment, “John Gwynn believes these might be of interest to you.”

Four days later, Heiman spoke to Gwynn personally, having a conversation which he summarized in the following report to Chanos:

From: Mark Heiman
Sent: December 16, 2002 4:46 PM
To: James Chanos; Douglas Millett; Charles Hobbs
Subject: Fairfax
Just spoke to John Gwinn at Morgan Keegan, and he was more critical of FFRX than I’ve ever heard a sell side analyst. It looks like his criticisms of from the top to the bottom–everything from underwriting to accounting to dishonesty. He gave me his basics, as he is somewhat restricted because he hasn’t officially launched. It will be interesting to see how much of this the people who run the research department there will let him publish!

On December 18, 2002, Chanos forwarded Heiman’s email to Jeff Perry, then an analyst at SAC Capital.

The day after Fairfax began trading on the NYSE, Gwynn’s revelations became much more explicit as he shared with Kynikos employee Heiman portions of his forthcoming report on Fairfax.

From: Mark Heiman
Sent: December 21, 2002 6:03 PM
To: James Chanos; Douglas Millett; Charles Hobbs
Subject: Fairfax
Last night John Gwinn at Morgan Keegan faxed over to me an outline detailing the issues at FFH, basically those he will be publishing on. He has been a huge help and even offered to talk to me from his home today. We can look at these and talk to him next week–I just wanted to come in today and take a look at what he sent to get a head start on what he sent.

In the days to follow, Gwynn and SAC Capital Portfolio Manager Forrest Fontana held a face to face meeting where they discussed Fairfax.

Fontana followed up on that meeting via email to Gwynn:

From: Forrest Fontana
Sent: January 06, 2003 8:57 AM
To: John Gwynn
Subject: RE: hope you had a nice holiday!
you available to touch-base on Fairfax sometime this week?

Followed by Gwynn’s prompt and eager reply:

From: John Gwynn
Sent: January 06, 2003 9:01 AM
To: Forrest Fontana
Subject: RE: hope you had a nice holiday!
Name the time.

Fontana proposed a conversation the following day and requested a spreadsheet summarizing Gwynn’s analysis on Fairfax, which Gwynn promised to send.

On January 13, 2003 Fontana sent his boss, Steven A. Cohen himself, a summary of his planned activities for the week, which included:

Tuesday 1/14: Morgan Keegan expected to launch on Fairfax with sell rating – we will be covering into this.

As it turns out, Gwynn’s report was published on the 17th of January, not the 14th as Fontana expected. Still, it’s clear that SAC Capital was formally planning to trade ahead of the information received by Gwynn.

Trading records produced by Kynikos and Third Point all tell the same story: heavy short selling in anticipation of Gwynn’s report, and highly profitable short covering in the days that followed.

What did John Gwynn get out of all this? That’s unclear, though upon his firing, Morgan Keegan went to great lengths to say that Gwynn’s opinions were his own and not influenced by the hedge funds that profited from advance knowledge of them.

The next question is: did Morgan Keegan get anything out of this arrangement?

The answer is yes: On December 21, 2002, the day after Kynikos received Gwynn’s unpublished analysis, Kynikos money manager Douglas Millett declared his intention to begin sending business to Morgan Keegan.

Apparently, that’s how big hedge funds like Kynikos operate, which makes Kynikos President James Chanos the logical person to represent his peers before Congress as that body considers long-overdue reforms.

Addendum: today (January 9, 2009) I received a letter from the attorney of Rocker/Copper River Partners protesting my suggestion that the firm was among those trading ahead of the Morgan Keegan report on Fairfax referenced above. In short, Rocker says the analysis was released on January 16, 2003 and their short position established the following day. The story has been slightly edited to reflect their position. I am currently examining the specifics of Rocker’s objections — though find that difficult given Rocker’s attorneys have taken steps to keep sealed what they insist is exculpatory evidence — and will return to this issue shortly.

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

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Fairfax and just the facts, Ma’am.


In July of 2006, Fairfax Financial Holdings (NYSE: FFH) filed a lawsuit alleging stock manipulation on the parts of several hedge funds, contract hedge fund operatives, and John Gwynn, an analyst with stock brokerage Morgan Keegan & Co.

The complaint is very enlightening and detailed in its claims, which can be broadly summarized as follows: certain hedge funds, which stood to profit by scuttling Fairfax’s stock price, illegally conspired and acted to do as much.

More specifically, the complaint says:

As a result of [S.A.C. Capital]‘s frequent communications with Morgan Keegan and Gwynn, S.A.C. learns when Gwynn intends to issue reports and what they will say and, indeed, frequently directs Gwynn on when to issue reports and what to say. (p.14)

Also like S .A.C., Exis is a significant client of Morgan Keegan and has substantial influence over Gwynn, with whom Exis also collaborates closely. (p.15)

…[convicted hedge fund operative Spyro Contogouris] orchestrat[ed] negative analyst coverage — particularly through Gwynn… (p.18)

Gwynn collaborated with certain hedge funds, including Enterprise member Trinity Capital, in developing extreme criticisms of Fairfax to support both short-term and long-term shorting strategies dubbed “the Fairfax Project.” Gwynn communicated these developed criticisms and his intention to release a highly negative report containing those criticisms in a series of road show presentations to major hedge funds including, among others S.A.C., Lone Pine, Kynikos, Highfields, Greenlight Capital, and Perry Capital . The hedge funds participating in this discussions understood at their conclusion that Gwynn intended to initiate coverage of Fairfax with an extremely critical report, they understood and contributed to the substance of the criticisms to be included in the report, and they understood that the report’s release would be timed to provide them an opportunity to establish their short positions. These critical Morgan Keegan clients also understood that once they had established a short position in Fairfax, Gwynn would continue to support that position with negative reports until they covered. This understanding was critical because the Fairfax Project contemplated short-term and longer term components, the latter of which involved enormous potential exposure to the Enterprise if the stock price increased substantially. (p.20)

The S.A.C. Defendants, Exis Defendants, Lone Pine Defendants, Rocker Defendants, Third Point Defendants and Trinity Defendants…frequently had communications and coordinated with [John Gwynn] and caused [Gwynn] to disseminate [his] reports to numerous clients, investors, journalists, and media outlets… (p.62)

Reading the complaint in full, it’s clear that Gwynn’s actions played a pivotal role in the execution of the defendant hedge funds’ manipulation efforts.

So clear, in fact, it may have contributed to Gwynn’s decision, six months later, to terminate coverage of Fairfax Financial (a fact bemoaned by Herb Greenberg, not surprisingly one of Gwynn’s biggest fans).

As expected, the suit’s many named defendants responded to the complaint with indignant denials and, in the case of John Gwynn, a countersuit filed in November of 2007, accusing Fairfax of making him “a scapegoat” for the company’s “financial, legal and accounting problems.”

Today, ten months after Gwynn’s countersuit was filed, a spokesman for Morgan Keegan told Bloomberg that Gwynn has been fired “for violation of a firm policy relating to his apparent advance disclosure of his pending research coverage of Fairfax Financial Holdings.”

In other words, Fairfax was correct about what Gwynn was doing.

Given that fact, what are the chances Fairfax was not also correct about who benefited from Gwynn’s corruption: mega hedge funds such as S.A.C. Capital, Third Point Partners, Greenlight Capital, Rocker Partners, et al?

And, supposing that aspect is true, there would appear to be quite a bit of coordination between short-selling hedge funds and shady stock research outfits.

And that sounds suspiciously like the claim Deep Capture reporter Patrick Byrne has been making, ad nauseum, for over three years.

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