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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.

Milken and Scher
(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.

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