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Michael Milken Redux: Insider Trading Indictments on the Horizon for SAC Capital and Others in its Destructive Network

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Michael Milken Redux: Insider Trading Indictments on the Horizon for SAC Capital and Others in its Destructive Network


It’s been a long time coming, but the guys with guns and badges might soon be slapping handcuffs on some of Wall Street’s most destructive miscreants. According to a report posted over the weekend on The Wall Street Journal’s webpage, “Federal authorities are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts  across the nation…”

The New York Times on Sunday followed up with its own report, quoting Preet Bharara, the United States attorney in Manhattan, who bemoaned “the lengths to which corrupt insiders will go to misuse confidential information for their own personal gain.” As the Times noted, the rhetoric is reminiscent of the 1980s, when the Feds busted the massive stock manipulation and insider trading ring led by the famous financial criminal Michael Milken – and, indeed, it might not be a coincidence that this weekend’s announcement of imminent indictments came exactly 20 years after Milken was sentenced to prison.

The names of some of the hedge funds mentioned in the press as likely DOJ targets – hedge funds like SAC Capital and Ziff Brothers – will be completely familiar to readers of DeepCapture.com. In fact, this website was founded in large part to expose the depredations of precisely this network – a network that has its origins (at least to some extent) in the criminal enterprise that Michael Milken built in the 1980s.

As we have long explained, this network not only regularly trades on inside information, it has pioneered new variations of the practice by, for example, manufacturing information (often false) which they can front-run in the market, employing abusive (and likely illegal) short selling techniques to manipulate the stock of public companies; and “capturing” some of the institutions this nation relies upon to curtail such behavior.

Most notable among these institutions are the financial press (large swaths of which have grown inappropriately close to precisely this network of hedge fund managers), and the SEC, which has not only failed in its regulatory duties, but has often assisted the hedge funds’ schemes by launching misguided (and go-nowhere) investigations of the companies the hedge funds have targeted, and providing the hedge funds with confidential information about those investigations.  All of this has been thoroughly documented within the pages of Deep Capture.

It was more than five years ago that Overstock.com CEO and future Deep Capture founder Patrick Byrne first gave a famous public conference call that he dubbed “The Miscreants Ball”. With more than 500 Wall Street executives and a few journalists listening in, Patrick outlined the existence of a “network” of miscreant hedge funds and “independent” financial analysts that he said was using underhanded methods to trade on privileged information and do serious damage to the financial markets.

In “The Story of Deep Capture”, we sought to explain the origins of the Deep Capture project by telling the tale of our extensive (and at times, arguably over-the-top) investigation of this network of hedge funds – a network that included SAC Capital (whose founder, Steven Cohen, was investigated by the SEC in the 1980s for trading on inside information given to him by Milken’s shop at Drexel, Burnham), Ziff Brothers, and others. This story was (I admit) exceedingly  long – it demanded its readers’ patience – but it provided plenty of detail of how the network operates.

Among the tactics we cited in that story was the use of so-called “independent” experts – experts who had been hired by hedge funds to ferret out inside information about companies targeted by the hedge funds, or to badmouth companies the hedge funds were selling short. It now appears that the Feds have themselves independently discovered how these “expert networks” actually operate and, as a result, some of these “experts” seem to be looking at possible jail time.

Another tactic we detailed at length was the use of supposedly “independent” financial research shops, such as Gradient Analytics, which were, in fact, in the business of publishing spurious reports for the benefit of their hedge fund clients, which would obtain the reports before they were made public and place trades that would profit from the effect that the reports would have on stock prices. Over and over again we noted how the false information in these reports ended up regurgitated in stories written by a small clique of journalists who appeared to have developed exceedingly close relationships to a small circle of hedge funds, and had come to depend on the hedge funds’ bogus analysis to the exclusion of all dissenting views.

The journalists (some of whom worked for The Wall Street Journal and The New York Times, whose editors must have swallowed hard before publishing this weekend’s stories announcing the imminent indictments) had, like the SEC, been “captured” by the hedge fund managers.

Some of these journalists even went to lengths to cover up the hedge funds’ shenanigans, insisting all along that their favorite hedge fund managers were innocent of any crime – indeed, insisting that the hedge fund managers were heroes and the smartest people on Wall Street. (The hedge fund managers were clever, to be sure, but apparently not clever enough to avoid becoming targets of what now appears to be the biggest criminal investigation in the history of Wall Street.).

In January 2009, in a story titled “Hedge Funds Reading Tomorrow’s Headlines Today”, Deep Capture reporter Judd Bagley provided indisputable evidence that SAC Capital, Ziff Brothers, and some of the network’s other major figures, such as James Chanos of Kynikos Associates, received advance copies, and traded ahead of bogus financial research produced by Morgan Keegan, a supposedly “independent” research shop that was, in fact, working for those same hedge funds.

Even after this evidence was posted for all to see, the press continued to use these hedge fund managers as sources, and never once cast doubts as to whether they really were wholesome geniuses who deserved the final say on the health of public companies. Meanwhile, James Chanos, who heads a hedge fund lobby, could be found regularly roaming the halls of the SEC, where he successfully convinced regulators to flinch from enforcing the rules against manipulative trading that he and his associates were skirting.

Some time ago, Deep Capture published another treatise titled “Michael Milken, 60,000 Deaths, and The Story of Dendreon.” In this book-length story (which might, indeed, have been the longest blog post ever published), we provided excruciating detail about the lengths that the Milken network of hedge funds – including SAC Capital – went to obtain (and manufacture) inside information about biotech companies.

We noted in that story that the hedge funds and  Michael Milken apparently even managed to “capture” doctors working for the Food and Drug Administration – prominent doctors who abandoned their duty to the public and served the interest of the most destructive network of financial operators in America. And we explained in that story that the hedge funds did not just trade on inside information, they also deployed their information advantage and abusive short selling to hobble public companies that were developing medicines that could have saved lives.

During the many years that Deep Capture has sought to expose these miscreants, we have struggled with our despair – our belief that the system might be so thoroughly corrupted that justice would never see the light of day.  In our view, the DOJ officials and FBI agents who are now going after this network of hedge funds deserve medals. They are “public servants” in the true meaning of the phrase.

If the indictments are indeed imminent, they are proof that there are some officials who will do what is right for the country in the face of great pressure — pressure from the media, which insisted on defending the hedge funds, and from an immensely powerful hedge fund lobby that had a lot of regulators and politicians on its side.

And make no mistake: the hedge funds that the Feds are targeting are not just “insider traders” – a term that makes it seem as if they are nothing more than outsized versions of Martha Stewart. These hedge funds’ tactics have damaged the integrity of the markets. And they have hobbled – perhaps even destroyed —  countless public companies. They even helped bring about our current economic troubles.

Indeed, it might not be a coincidence that the hedge funds named as likely to be facing indictments – SAC Capital, Citadel, Ziff Brothers, and others in their network – are the same hedge funds that attacked Lehman Brothers and Bear Stearns, the collapse of which contributed mightily to market cataclysm of 2008.

Bear Stearns executives reported seeing the managers of SAC Capital and Ziff Brothers celebrating the demise of that bank at a special breakfast meeting days after its collapse. The creditors of Lehman Brothers are suing some of these same hedge funds — SAC Capital, Och-Ziff (run by Dirk Ziff, also of Ziff Brothers) and Citadel —  because they seem to be the  most likely suspects in the illegal short selling and rumor mongering that helped topple or almost topple, not just Lehman, but multiple other pillars of the American economy.

Yes, make no mistake – these hedge funds are not just small-time insider traders. I do not even think it is a huge stretch to say that some of these hedge funds are a threat to the security of our nation.

As it happens, it is on this subject – the threat that some traders pose to national security – that Deep Capture is now on the verge of publishing an immensely long and detailed piece of research. For now I will refrain from revealing too much of the article’s contents except to alert you that it includes excruciating detail about this Milken network, shocking facts about some traders who are dangerous in every sense of the word, and a tremendous amount of information regarding some singularly ruthless organized crime groups and people tied to the world’s most violent terrorist outfits.

Given this, readers will understand if I remind them that immediately before Deep Capture published my work on Dendreon, Patrick Byrne posted a short piece, “Coming Attraction: Michael Milken, 60,000 Deaths, and The Story of Dendreon“. In it, he wrote:

Incidentally, I feel it only prudent to mention that, on the remote chance that anything happened to interrupt the serialization of this piece on DeepCapture (say, for example, a power failure), then arrangements have been made for it to receive immediate publication, in full, in a way that would reach 20 million people, instantly.  In addition, the whole package is already in the hands of some politicians who care.  Lastly, over the last couple of years I constructed a Doomsday Machine (and of course, there’s no point in having a Doomsday Machine if you keep it a secret). The reader who gets but a few pages into it will understand why I make this cautionary mention.

We will begin publishing this new story as a series in a few weeks. We apologize to our regular readers for not updating the Deep Capture site regularly during recent months. And we thank our readers for having the patience to wade through our previous stories, and for staying tuned for what will be by far our longest and most comprehensive story to date.

In other words – more bad news on the way.

Posted in Featured Stories, The Deep Capture Campaign, The Mitchell ReportComments (69)

Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 11 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 11 of 15)



What follows is PART 11 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

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

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

In addition, we had learned that in April 2007, Howard Scher, an FDA-contracted doctor who had sat on the FDA advisory panel that reviewed Dendreon’s application, and who also happened to be the chairman of the Prostate Cancer Foundation’s “Therapeutic Consortium,” initiated an unprecedented lobbying campaign to have the FDA reject Dendreon’s application for approval. This was highly improper, not only because advisory panel doctors are not supposed to lobby the FDA after a panel has already voted, but also because Dr. Scher was hardly an objective observer. Aside from his affiliation with Milken’s “philanthropy,” Dr. Scher was also an executive and board member of Milken’s ProQuest Investments, the firm that controlled Dendreon’s competitor, Novacea. Dr. Scher was, moreover, leading clinical trials for Novacea and serving as a board member of Lindsay Rosenwald’s Cougar Biotechnology.

Also involved in the lobbying effort against Dendreon was Dr. Maha Hussain, who was also one of the 17 doctors who had sat on the FDA advisory panel that voted on Dendreon’s treatment (all 17 doctors voted that Dendreon was safe; only Dr. Scher, Dr. Hussain, and two others voted that it was not effective).  Dr. Hussain, like Dr. Scher, should not have been on that panel because she, too, had ties to the Milken-invested Novacea.

Perhaps owing to those ties, both Dr. Scher and Dr. Hussain trashed Dendreon in “confidential” letters to FDA commissioners, letters which immediately were reprinted in a dubious publication called The Cancer Letter, causing Dendreon’s stock price to tank, to the profit of those ten hedge fund managers who had had the “foresight” to place big long-shot bets against Dendreon.

Soon after, the FDA told Dendreon that it would not approve its prostate cancer treatment, sending the stock into the single digits, much to the delight of criminal naked short sellers who apparently knew the FDA decision was in the works and sold millions of phantom Dendreon shares in the days just prior to the decision becoming public knowledge.

While the hedge funds were not surprised by the decision, many were. This was the first time in history that the FDA had ignored an expert advisory panel recommendation to approve a treatment destined for dying patients.

Which raises the question…

* * * * * * * *

Who in the government helped sabotage Dendreon? Despite the lobbying by the captured doctors, despite the Wall Street whispering, despite the singing Sendek and the media mimics — despite all of this, it still seemed likely that the FDA would heed the advice of its advisory panel.

Instead, the FDA told Dendreon that it would not yet approve its treatment — that the company had to get more data, which would take years, by which time the company could easily run out of money. The FDA handed Dendreon (and prostate cancer patients) what seemed like a death sentence. This was a strange occurrence. It must have followed some serious work by government officials in high places.

One official who might have advocated against Dendreon was then FDA Commissioner Andrew von Eschenbach, who was a close ally of Michael Milken. Dr. von Eschenbach was a founding director of Milken’s Prostate Cancer Foundation, and later he was at the forefront of an ultimately unsuccessful effort to convince George Bush to grant a presidential pardon forgiving Milken for his crimes. But it is clear that von Eschenbach was not the only official courted by Milken and his associates.

Long before I came along, an assortment of Dendreon shareholders, prostate cancer patients, honest folks on Wall Street (there are some), and concerned citizens spotted the connections among Milken, ProQuest and the captured doctors who led the lobbying effort against Dendreon. When the FDA failed to approve Provenge, these folks saw that an injustice had been done, and they hollered loudly. Soon after, a grass roots organization called Care-to-Live was founded to advocate on Dendreon’s behalf.

Care-to-Live (to whom I owe a debt of gratitude for uncovering some of the information that appears in this story) has not only chronicled Dendreon’s travails, but has also labored tirelessly to right the wrongs.  It has organized street protests and letter-writing campaigns. It has lodged Freedom of Information Act requests and it has filed a lawsuit against the FDA. In the course of these efforts, it managed to get a hold of various documents and email communications between Dr. Scher (the physician with financial ties to Milken’s companies and “philanthropy”) and officials in the government bureaucracy.

What these documents and emails show is that Dr. Scher and his allies depended largely on support from a mid-level FDA employee and the National Cancer Institute, which oversees government funding of cancer initiatives, and has considerable, though unofficial, influence over FDA decisions. Over the years, Milken and his Prostate Cancer Foundation have made great efforts to ingratiate themselves with the NCI, which may be one reason why Dendreon was never able to receive government funding, despite the revolutionary potential of its treatment.

On March 31, 2007, Alison Martin, who was in charge of the prostate cancer division of the National Cancer Institute, emailed Dr. Scher, who was busy crafting the missive that would be published with mysterious immediacy by The Cancer Letter. “Glad to hear letter is being drafted,” Martin wrote. “If that [FDA] division’s vote suggests [that Dendreon’s treatment] be considered for approval, I was wondering if it then could go to ODAC, which is more clinically savvy, i.e. this is just a step in a process.”

The “division” whose possible approval of Dendreon’s treatment so discomfited Dr. Martin was the FDA’s Center for Biologic Evaluation & Research (CBER), which was assigned the task of evaluating Dendreon’s application. Martin was suggesting that if CBER was going to approve Provenge, perhaps the matter could be taken to ODAC – the FDA’s Oncologic Drugs Advisory Committee, which was led by an FDA official named Dr. Richard Pazdur.

Pazdur has a close relationship with a Washington lobbyist named Samuel D. Turner. Some years ago, Turner, who helps run an organization called the Cancer Leadership Council, led a campaign to have Pazdur appointed as the commissioner of the FDA. Michael Milken supported that campaign. And Milken’s advisors, such as Dr. Donald Coffey of the Prostate Cancer Foundation, have collaborated closely with Turner in another cancer lobbying group called C-Change, of which the Cancer Leadership Council is an affiliate.

As a result of this support, Milken and Pazdur have become very close friends.

Some years ago, a U.S. Congressional investigation determined that Pazdur, through his lobbyist friend Turner, had leaked inside information that the FDA was going to reject Erbitux, a cancer drug that was developed by ImClone. As you will recall, that inside information made its way to Martha Stewart, setting in motion the chain of events that landed her in jail.  The ImClone inside information also was first published in The Cancer Letter, the same rag that published Dr. Scher’s “confidential” letter to the FDA.  And, remember, the records of phone calls made to ImClone at that time raise the distinct possibility that funds managed by Milken cronies Carl Icahn, Steve Cohen, and Dirk Ziff also were privy to that information before it was made public.

As an aside, after ImClone’s stock crashed on the news, the company was seized by Milken crony Carl Icahn. And soon after Martha Stewart received the inside information, but before she was caught, hedge funds in the Milken network began short selling Martha Stewart’s company, Martha Stewart Living Omnivision. One hypothesis that explains the exquisite timing of those hedge funds is that the funds knew Martha was going to be arrested and therefore shorted her company on the assumption that news of her arrest would crash the stock. They may even have been the ones who turned her in.  But that is a story for another time.

For now, it merely needs to be emphasized that Pazdur, the FDA official, has unusually close relationships with Milken and some of his cronies. He was a key player in the ImClone scandal, which displays remarkable similarities (such as insider information mysteriously appearing in The Cancer Letter and the involvement of hedge funds in the Milken network) to the Dendreon scandal. And Pazdur appears to have been the FDA official most responsible for derailing Dendreon’s prostate cancer treatment.

Pazdur was not supposed to be the one who decided whether Dendreon’s drug was approved. Instead, because the drug is a biologic, the decision rested with the FDA’s Center for Biologics Evaluation and Research (CBER). Nonetheless, Pazdur inserted himself into the decision process. It was at Pazdur’s behest that Dr. Scher and Dr. Hussain were, despite their ties to competing companies controlled by Milken’s funds and friends, appointed to the advisory panel that voted on Dendreon’s application.

As you will recall, Dr. Scher and Dr. Hussain were among the four panelists who quickly voted “No” to the incorrectly phrased question about Dendreon’s effectiveness. When the phrasing was changed to the correct, legally mandated question ( Is there “substantial evidence” that the drug reduces mortality?) the remaining 13 experts on the panel voted “Yes.”

According to eyewitnesses, just as panelists began voting “Yes,” Pazdur began passing notes to Dr. Maha Hussain, who then attempted to instill further confusion, apparently hoping to have the remaining panelists continue to vote on the incorrect question. Pazdur, who had come to the meeting uninvited and unannounced, also spent a good deal of time conversing with Dr. Hussain, giving the impression that they were working together to devise arguments that might turn the panel against Dendreon.

Curious to know whether it was Pazdur who ultimately derailed Dendreon’s application, perhaps even delivering the captured doctors’ “confidential” letters to The Cancer Letter – and wondering whether this had anything to do with Pazdur’s relationship with Michael Milken — Care-to-Live, as part of its lawsuit against the FDA, subpoenaed Pazdur’s relevant emails and documents.

Pazdur responded under oath as follows: “I searched both my paper and computer files and was unable to locate any documents that were responsive to Plaintiff’s requests. I recall receiving…these letters…However, as these letters related to a specific regulatory application conducted by a different FDA Center (CBER), did not fall under my direct regulatory supervision…I shredded my hard copies of these letters and deleted any electronic copies. The documents were shredded and deleted within a month of receipt.”

This response was strange. For one, Pazdur seemed to be stating that he had no involvement in the Dendreon decision. If that were the case, what was he doing at the advisory panel meeting?  Pazdur’s statement also contradicted an earlier statement from the FDA. In response to complaints that Pazdur had participated in a decision that was supposed to be left to the CBER division, the FDA said that he had done so “at CBER’s request.” Clearly, Pazdur had been involved in the decision, so it was disingenuous for him to state otherwise in his efforts to explain why he had (frantically?) shredded and deleted all the relevant documents.

Moreover, if Pazdur is telling the truth (and not, that is, simply obstructing justice), then Pazdur violated the spirit of various initiatives, including a bill passed in the U.S. House of Representatives and directives from the Archivist of the United States, aimed at ensuring that government employees maintain records of their official business. The reason that government officials are asked to keep good records is that they are sometimes involved in controversies – controversies such as the one that was swirling around Dendreon’s FDA application when Pazdur began shredding and deleting documents so promptly and thoroughly.

In any case, most of the documents that Care-to-Live requested had been transmitted electronically, meaning that a simple computer excavation could have retrieved them, even if they were deleted. Clearly, Dr. Pazdur had reason not to hand over those documents. Perhaps he was advised not to by his lawyer, who happens also to be the same lawyer who represents The Cancer Letter, the rag that published the “confidential” letters that Dr. Scher and Dr. Hussain wrote to Dr. Pazdur and FDA commissioners.

Fortunately, Alison Martin of the National Cancer Institute did not shred everything – she handed over at least some of her documents. And the email quoted above strongly suggests that her plan was to get Dendreon’s application out of the hands of the designated authority, CBER, and into the hands of Richard Pazdur. In response to that email, Dr. Scher wrote to Martin that he, too, would try to have Dendreon’s application “reviewed by ODAC” (which was controlled by Pazdur). In a follow-up email, Dr. Scher wrote: “Got a minute for quick question related to FDA processes?”

A minute later, Martin responded: “Consider this confidential, please…but I wanted you to know.” As to what confidential information she delivered to Scher, that is unclear from the documents received by Care-to-Live. Apparently, the telling documents were also promptly shredded.

But other documents and emails show that by early April, Martin was fully engaged in helping Scher draft his letter trashing Dendreon — the “confidential” letter to the FDA that would be quickly published by The Cancer Letter. Indeed, a copy of a half-edited draft of Dr. Scher’s letter was found on Martin’s computer. And in one email, Martin appears to complain about all the work she has done on this letter. “Maybe you should write a letter, too,” she jokes.

So an employee of the federal government was helping a conflicted doctor lobby the federal government. That is, Martin, the head of the prostate cancer unit at the National Cancer Institute, was helping a doctor – a doctor with financial ties to Michael Milken and to a competing, Milken-invested company — sabotage Dendreon’s treatment for prostate cancer.

As news of this started to reach Dendreon’s supporters, Martin left her job at the National Cancer Institute. Soon after, she was appointed president and chief executive officer of the Melanoma Research Alliance (where one  can safely suppose her compensation exceeds her previous government salary).

The Melanoma Research Alliance was a brand new “philanthropic” outfit. It had just been set up by a “prominent philanthropist.”

The name of the “prominent philanthropist” is, of course, Michael Milken.

Milken founded the Melanoma Research Alliance and hired Alison Martin with an initial grant from Leon Black, the “prominent” billionaire and Milken crony who does business with an alleged Russian mobster named Felix Sater.

Sater, remember, is the fellow who allegedly was behind the threat to have Deep Capture reporter Patrick Byrne murdered if Patrick did not end his crusade against abusive short selling and the “deep capture” of the nation’s regulatory bodies.

* * * * * * * *

On May 11, three days after the FDA failed to approve Dendreon’s treatment, The Wall Street Journal published a report that purported to investigate the allegations that the government approval process had been compromised. This “investigation” entailed asking Dr. Scher whether he had any conflicts of interest.

“’I try to keep to the high ground,’” Dr. Scher told The Journal. Apparently content with his reply, and eager to assuage any suspicions that something nefarious had gone down, The Journal added that Dr. Scher “serves as an advisor to Innovive, a small biotech not involved in prostate cancer, and works with Bristol-Myers Squibb in an unpaid capacity on early stage drugs that may hold promise in prostate cancer. He and his wife hold small amounts of stock in Biogen, Idec and Pfizer.”

That was it. According to the Journal, Scher had no conflicts of interest.

The Journal did not mention that Dr. Scher was a board member and executive of  Milken’s ProQuest Investments. It did not mention the fact that ProQuest was heavily invested in Novacea, a Dendreon competitor. It did not mention that Dr. Scher was leading the trials of Novacea’s prostate cancer drug, or that he was a paid director on the advisory board of another Dendreon competitor – Milken crony Lindsay Rosenwald’s Cougar Biotechnology. And it did not mention that Dr. Scher was leading clinical trials for yet another Dendreon competitor, Cell Genesys, which, like Cougar and Novacea, was supported by Milken’s Prostate Cancer Foundation, whose “Therapeutic Consortium,” was chaired by none other than Dr. Scher.

The Wall Street Journal did not mention any of this, despite the fact that concerned citizens had plastered the information all over the Internet.

Four days after the Journal article appeared– May 15, 2007 – the FDA issued new guidelines for evaluating immunotherapy agents, such as Dendreon’s treatment. Now it was official – Pazdur’s division would have some influence.

This seemed like the FDA was papering over a scandal. If Pazdur had violated the guidelines by influencing the Dendreon decision, now the FDA could say that, in fact, there were new guidelines, and Pazdur had followed them (never mind that the new guidelines were written one week after the FDA failed to approve Dendreon’s treatment, possibly because Pazdur had violated the old guidelines).

* * * * * * * *

Just a few weeks after the FDA said it would not yet approve Dendreon’s treatment, it was easier to understand why Dr. Scher, Milken and their allies were so eager to see Dendreon fail. On May 30, 2007, Novacea, the company whose largest investors were Milken’s ProQuest Investments and the affiliated Domain Associates, announced that it had signed a $500 million deal to jointly develop its prostate cancer treatment with pharmaceutical giant Schering Plough. Within 24 hours, Novacea’s stock price jumped 86 percent.

In subsequent days, the business media reported this “news” as if it were not just a business triumph, but also a major breakthrough in the world of medicine. “On Tuesday, Novacea was just another young biotech, with a modest market capitalization of $187 million,” enthused Forbes magazine. “That all changed on Wednesday when the drug maker announced it had signed a deal worth over $500 million with pharma juggernaut Schering-Plough.”

Forbes added that Novacea’s treatment “appears to significantly increase the chance of survival among androgen-independent prostate cancer patients…”

As this $500 million figure and news of Novacea’s medical miracle made its way around the other news organizations, and appeared everywhere on the Internet, Novacea’s stock continued to soar.

Nobody in the media paused to consider whether a “$500 million deal” constitutes a medical breakthrough (like, for example, reducing mortality by 20% in late-stage prostate cancer patients, as Dendreon had done). The assumption was, if there is big money and the stock is soaring, the company’s prostate cancer treatment must be good.

Furthermore, nobody in the media paused to consider that had Dendreon received approval for its competing treatment, this “$500 million deal” would almost certainly not have happened. Nor did anybody in the media report that the people (Milken and friends) who stymied Dendreon were the same people who stood to profit from this purported “$500 million” deal.

At any rate, the deal was not quite what it was made out to be. Novacea did not receive $500 million. It received $60 million up front. Meanwhile, Schering-Plough was given $12 million worth of Novacea stock at a bargain price. By cashing out of the stock after it soared in value, Schering-Plough could significantly reduce that upfront investment. The rest of the much-trumpeted $500 million was dependent on Novacea’s clinical trials showing that its cancer treatment actually improved the health of patients.

Sure enough, just a few months later, in November 2007, Novacea announced that the clinical trial of its treatment had been terminated “due to an unexplained imbalance of deaths…” In other words, Novacea’s drug was not improving the health of patients. It was killing patients. And as soon as this news was released, the much-heralded $500 million Schering-Plough deal was cancelled.

Either shortly before or soon after the trials were terminated due to an “imbalance of deaths,” Milken’s ProQuest Investments and Domain Associates sold their stock in Novacea. Given the enormous boost the stock price had received after the “$500 million” news, it appears that  ProQuest and Domain (i.e. Michael Milken and friends) sold their stock at a significant profit.

So the questions remain: Did Dr. Scher (who worked for ProQuest and lead Novacea’s clinical trials) really believe that Novacea’s treatment was superior, as he claimed during his successful campaign to get the FDA to reject Dendreon’s drug? Did Michael Milken’s Prostate Cancer Foundation, which was an extension of ProQuest and snubbed its nose at Dendreon’s treatment, really believe that there were better treatments in the pipeline?

Did ProQuest and its affiliate Domain, which founded Novacea, ever care about producing a marketable drug? Or was Novacea a scam? A scam that was built on real science (though Dr. Scher was less than upfront about the results of his clinical trials, his efforts to develop Novacea’s treatment were no doubt sincere).  A scam that was more sophisticated than those perpetrated by the bucket shops of yore, and whose every component may have been technically legal.

But nonetheless a scam – an old-fashioned pump and dump scam.

* * * * * * * *

To be continued….Click here for Chapter 12.

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)

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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?

* * * * * * * *

Actual Joel Sendek publicity photo
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:
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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 6 of 15)

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



What follows is PART 6 of a 15-PART series. The remaining installments will appear on Deep Capture in the coming days, after which point the story will be published in its entirety.

Click here to read PART 1

Click here to read PART 2

Click here to read PART 3

Click here to read PART 4

Click here to read PART 5

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

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

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

* * * * * * * *

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

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

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

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

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

The third question is, who is Jonathan Aschoff?

* * * * * * * *

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

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

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

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

What reason did Aschoff have for reaching that conclusion?

* * * * * * * *

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * * * * * * *

To be continued…Click here for Chapter 7.

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

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