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

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

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

Click here to read PART 1

Click here to read PART 2

Click here to read PART 3

Click here to read PART 4

Click here to read PART 5

Click here to read PART 6

Click here to read PART 7

Click here to read PART 8

Click here to read Part 9

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

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

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

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

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

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

* * * * * * * *

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * * * * * * *

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * * * * * * *

To be continued….Click here for Chapter 11.

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 4 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 4 of 15)

What follows is PART 4 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

Where we left off, we had learned that CNBC’s Jim Cramer, who once planned to run a hedge fund out of the offices of Michael Milken’s famous criminal co-conspirator Ivan Boesky, had declared Dendreon to be a “battleground stock.” And we had learned that Dendreon eventually came under a brutal, illegal naked short selling attack, right at the time that an FDA advisory panel voted in favor of the company’s prostate cancer treatment, and right before some strange occurrences were to prevent that treatment from reaching patients.

We had also learned that naked short sales are often “married” to put options (bets against a company), and at the time of the Dendreon attack, in 2007, only ten hedge fund managers on the planet owned large numbers of put options on Dendreon’s stock. Finally we had learned that those imminent strange occurrences (which will be described in due course) might have had something to do with the “philanthropy” of Michael Milken, the famous criminal. Thus, it seemed worth noting that at least seven of those ten hedge fund managers who placed large bets against Dendreon can be tied to Michael Milken or his close associates.

One of the seven hedge funds was the Mafia-connected Bernard Madoff, who orchestrated a $50 billion Ponzi scheme while helping author an SEC loophole that enabled hedge funds to “marry” naked short sales to put options – creating phantom stock “bullets” that could be used to drive down prices. The second of the seven hedge fund managers worked for Lindsay Rosenwald, a Milken crony who once helped manage a Mafia-affiliated brokerage called D.H. Blair.

Now we learn a bit more about D.H. Blair and meet two more of the hedge funds that stood to profit from the demise of Dendreon, a company with a promising treatment for prostate cancer…

* * * * * * * *

D.H. Blair, the Mafia-affiliated brokerage founded by Lindsay Rosenwald’s father-in-law (the so-called “king of stock fraud”) and managed for some time by Rosenwald and Michael Milken’s former national sales manager, received much of its finance from the family of a man named Zev Wolfson. Mr. Wolfson was also closely involved with another Mafia-affiliated brokerage, A.R. Baron.

As you will recall, D.H. Blair and A.R. Baron featured prominently in the prosecution’s case against White Rock Partners, the firm that was co-founded by Felix Sater. Felix Sater, remember, is the alleged son of a top Russian Mob boss. He previously worked as a trader for Gruntal & Company, a Mafia-affiliated brokerage that was stacked with cronies of Michael Milken.

You will remember that Sater, the fellow alleged to have blood ties to the Russian Mafia, is currently a business partner of Milken crony Leon Black. You will also recall that Sater is allegedly the man who sent a message that the Mafia would murder Deep Capture reporter Patrick Byrne if he continued his crusade against illegal naked short selling. And Sater is the same guy whose naked short selling colleague, Alain Chalem, had his ears and face shredded with bullets.

Wolfson, meanwhile, was involved in another “colorful” brokerage, Pond Equities. In 2006, the SEC filed civil charges accusing Pond Equities of participating in a massive naked short selling fraud.

Aside from funding Mafia-affiliated brokerages, some of which were closely tied to Michael Milken, Wolfson was also the key early investor in funds controlled by a number of Milken’s more “prominent” cronies.  For example, Wolfson was an early benefactor of a “prominent billionaire” named Saul Steinberg.

In the 1980s, Steinberg built a company called Reliance Insurance with generous junk bond financing from Milken. Reliance, in turn, became one of the Milken-aligned financial conglomerates that regularly bought the junk bonds that Milken was selling for his other cronies. In other words, Steinberg was a key player in Milken’s junk bond merry-go-round – one of history’s great Ponzi schemes. Eventually, Steinberg looted and bankrupted Reliance, though he has never been charged with any crime.

Today, Steinberg is a founding partner of Wisdom Tree Investments, which is managed by Steinberg’s son, Jono. Jono is married to CNBC’s Maria Bartiromo, also known as the “Money Honey.” The Money Honey’s father is the former owner of a Brooklyn catering outfit and private club called the Rex Manor. Residents of Brooklyn know the Rex Manor as a popular hang-out for members of the Bonanno organized crime family (a fact that is merely of biographical interest and not meant to imply that Mr. Bartiromo is tied to the Mob).

The other founding partner of Wisdom Tree Investments is Michael Steinhardt, who is one of the nation’s most “prominent” hedge fund managers. As was noted in Chapter 3, Steinhardt’s father, Sol “Red” Steinhardt, worked for the Genovese organized crime family and spent a number of years in Sing-Sing prison after a New York prosecutor pegged him as “the biggest Mafia fence in America.” According to Steinhardt himself, the key limited partners in Steinhardt Jr.’s first hedge fund were the Genovese Mafia and three “prominent investors” – Marty Peretz, Marc Rich, and Ivan Boesky.

Ivan Boesky, we know, was famously indicted in the 1980s for participating in various stock manipulation schemes with Michael Milken. Also convicted for his participation in these schemes was a man named John Mulheren, who had run an arbitrage fund largely financed by Zev Wolfson (the fellow who also financed Saul Steinberg, the Mafia-affiliated brokerages tied to Milken, and other Milken cronies who will be introduced shortly).

Although Mulheren’s conviction for manipulating stocks was ultimately reversed on appeal, there was a time when he believed that Boesky might squeal on him and his friend, Michael Milken. So one day Mulheren loaded his car with weaponry and set out to assassinate Boesky. Fortunately, the police arrested Mulheren before he could commit the murder.

According to a famous book called “Den of Thieves,” written by Pulitzer Prize winning author James Stewart, Mulheren spent most of his time in jail conversing with Anthony “Fat Tony” Salerno, who was then the top boss of the Genovese Mafia family. In addition, Scotland Yard has linked Salerno to Steven Wynn, a Las Vegas casino operator. Wynn’s wife, Elaine, sits on the board of Michael Milken’s Prostate Cancer Foundation. Steven Wynn is Milken’s closest friend, according to Milken.

After he got out of jail, Mulheren co-founded a hedge fund called Millennium Partners, then promptly died of an early heart attack, leaving his co-founder, Izzy Englander, to continue operating the fund. Izzy Englander secured much of his investment capital from not just Zev Wolfson, but also the Belzberg brothers – William, Sam, and Hymie. Executives at an investment firm called the Bache Group, citing U.S. Customs Service reports, once accused the Belzberg’s of having ties to organized crime.

As we know, only ten hedge funds on the planet owned large numbers of Dendreon put options at the end of March 2007, right after Dendreon received the fantastic news that the FDA’s advisory panel had voted that the company’s treatment for prostate cancer should be approved. In other words, after Dendreon received its fantastic news only ten hedge funds were maintaining long-shot bets against Dendreon (long-shot bets that would, in time, prove strangely prescient). At least seven of those hedge funds are quite “colorful” – and all seven are part of the same network.

So far we have discussed two of the seven “colorful” fund managers who stood to profit from the demise of Dendreon. Those two are Bernie Madoff, the $50 billion Ponzi schemer and naked short seller, and Lindsay Rosenwald, formerly a manager of the Wolfson-financed D.H. Blair, which was founded by Rosenwald’s father-in-law (the “king of stock fraud”). Both D.H. Blair and Madoff had ties to organized crime. Both worked intimately with Michael Milken or his closest associates.

So perhaps it is no surprise that the third hedge fund that was betting heavily against Dendreon in March 2007 was Millennium Management, co-founded by John Mulheren–jailhouse confidante of “Fat Tony” Salerno (the Genovese Mafia boss); co-conspirator of Michael Milken; would-be murderer of Ivan Boesky; and recipient, like other Milken cronies and a number of Mafia-affiliated brokerages; of key finance from Zev Wolfson.

Altogether, Millennium owned put options on 800,000 shares of Dendreon at the end of March 2007 – just after the company’s prostate cancer treatment was endorsed by an FDA advisory panel; right at the time that Dendreon came under a blistering illegal naked short selling attack; and just before Dendreon was to experience some strange occurrences.

* * * * * * * *

Let us return to Zev Wolfson. As we know, Wolfson funded D.H. Blair, the Mafia-affiliated brokerage which became the target of a 173 count indictment, saw two vice chairmen please guilty to securities fraud, had a president (Richard Maio) who was once Michael Milken’s national sales manager, and had another vice chairman (the son-in-law of the “king of stock fraud”) who is now one of America’s biggest biotech traders and an adversary of Dendreon.

We also know that Wolfson was the key early investor in funds run by Milken cronies Saul Steinberg (partner of Michael Steinhardt, whose father worked for the Genovese family as the “biggest Mafia fence in America”) and John Mulheren, who spent his jail-time conversing with Genovese boss Anthony “Fat Tony” Salerno, and then co-founded Millennium Management, which later also became an adversary of Dendreon.

In addition, Wolfson was a key early investor in a fund managed by “prominent billionaire” Carl Icahn.

Before he became a “prominent” billionaire, Icahn, remember, founded the options trading department at a firm called Gruntal & Company, which owed its existence to the generous finance that the criminal and future “philanthropist” Michael Milken gave to its parent company, the Home Group. Like Steinberg’s Reliance Insurance, the Home Group was a key player in Milken’s junk bond Ponzi scheme.

As mentioned, Icahn was replaced at Gruntal by Milken crony Ron Aizer, who proceeded to hire as traders two associates of Michael Milken. According to a reliable source, one of those traders was investigated for trading on inside information provided by Milken’s operation at Drexel Burnham Lambert. Both traders are now “prominent” hedge fund managers, and both are important characters in the story of Dendreon, so I will return to them soon.

As also mentioned, Gruntal was caught embezzling millions of dollars. One of its traders was found to be running money for the Gambino Mafia family. And a large number of its traders went on to work for White Rock Partners, the Mafia firm that was indicted for manipulating stocks with help from the Mafia-affiliated D.H. Blair, founded by the father-in-law of Lindsay Rosenwald, who was one of those seven “colorful” hedge fund managers who stood to profit from the demise of Dendreon.

Recall that White Rock also did business with the naked short seller Alain Chalem. Recall also that White Rock’s other co-founder has said that he once worried that Felix Sater might murder Chalem. As we know, Chalem eventually was assassinated in his New Jersey mansion (which does not, of course, prove that those fears were correct).

When Icahn left Gruntal, he began a career in “greenmailing” – acquiring large amounts of companies’ stock and threatening to make problems if the companies didn’t buy back the stock at a premium. His greenmailing (a.k.a. blackmailing) exploits were made possible by generous junk bond finance handed to him by Michael Milken. By most accounts, Icahn owes his phenomenal wealth and power to two people – Zev Wolfson (financier to multiple Mafia-affiliated brokerages) and Michael Milken, who is (as should be clear by this point) on close terms with many Mafia-connected investors, and is now considered a “prominent philanthropist.”

Given his association with Milken and Wolfson, it is perhaps predictable that Icahn has relationships with other Mafia-connected goons as well. For example, Icahn once employed a man named Allen Barry Witz, who was later implicated by the U.S. government in a Mafia-run stock manipulation fraud. As it happens, Witz also did business with Alain Chalem, the Mafia-connected naked short seller who was assassinated in New Jersey – his head, face and ears filled with bullets.

According to various reports, Icahn’s former employee, Barry Witz, was one of the last people, other than the killers, to see Chalem alive.

* * * * * * * *

Milken crony Carl Icahn has had multiple brushes with naked short selling. For example, Icahn was the man behind Ladenburg Thalmann, an investment bank that financed many companies through so-called PIPEs – private investments in public equities.

The PIPEs industry is rife with abuse (See Forbes magazine’s story, “Sewer PIPEs,” which describes some of the industry’s ties to the Mafia).  Since PIPEs dilute equity, a company that does a PIPEs deal will typically see its stock fall in value. To capitalize on this, hedge funds affiliated with the PIPEs investor (i.e. with the company’s supposed benefactor) will sometimes illegally naked short the company before and after the PIPEs deal is announced.  Often, this naked short selling sends the stock into a “death spiral,” and the company is put out of business.

In one famous case, Icahn’s Ladenburg Thalmann was hired to broker a PIPEs deal for a small software firm called Sedona Corporation. In this capacity, Ladenburg introduced Sedona to a hedge fund called Rhino Advisors, which in turn brought in a hedge fund called AMRO International. According to prosecutors who later charged Rhino with stock manipulation, as soon as AMRO and Sedona entered into their PIPEs deal, Rhino’s owner Andreas Badian, instructed his traders to naked short Sedona with “unbridled aggression.” Rhino’s other owner, Thomas Badian, is now a fugitive from the law living in Austria.

According to the SEC, Rhino’s naked short selling was conducted in collaboration with Pond Equities (also known as Pond Securities), which was financed by Zev Wolfson, the fellow who also financed all those Milken cronies, including Icahn and the folks at the Mafia-affiliated D.H. Blair.

Most of Rhino’s phantom stock was processed through a giant brokerage called Refco Securities, which was later found to be hiding more than $400 million worth of liabilities in off-balance sheet entities. As Deep Capture reporter Judd Bagley detailed in a recent video (click here to watch), those liabilities were likely related to Refco’s rampant naked short selling.

In a series of stories for The Deal, a financial news magazine, reporter Stacy Mosher determined that Amro International had provided PIPEs financing to over sixty companies, many of them biotech firms. At least 29 of those deals involved Carl Icahn’s Ladenburg Thalmann. Soon after announcing their PIPEs deals, every one of those 29 companies were hit with unbridled naked short selling. Every one of those 29 companies saw their stocks go into “death spirals.” And nearly every one of them quickly went out of business.

Icahn is not the most famous player in the world of PIPEs. That accolade belongs to another of Milken and Wolfson’s charges — Lindsay Rosenwald, one of those seven “colorful” hedge fund managers who stood to profit from the demise of Dendreon.

Rosenwald worked for Ladenberg Thalmann before joining his father-in-law (the “king of stock fraud”) at D.H. Blair, the Mafia-affiliated brokerage whose president was Michael Milken’s former national sales manager. In addition to financing medical companies with no medicines, Rosenwald’s Paramount Capital has done some PIPEs deals with companies that did, indeed, have promising medicines. Many of those companies are now gone — drowned by tsunamis of phantom stock.

* * * * * * * *

As mentioned, Carl Icahn, who would later owe his status as a billionaire to Michael Milken, founded the options department at Gruntal & Company, which owed its existence to Michael Milken.  When Icahn left Gruntal, he was replaced by Milken crony Ron Aizer, who proceeded to hire two traders who are cronies of Michael Milken.

The first trader hired at Gruntal by Aizer was a man named Steve Cohen, who later founded a hedge fund called SAC Capital. Cohen has been described (by BusinessWeek magazine and others) as “the most powerful trader on Wall Street.”

In an upcoming chapter, I’ll name the second trader hired by Aizer. Soon after that trader was hired, Cohen was joined at Gruntal by Stephen Feinberg, who had previously been a top trader for Milken’s operation at Drexel Burnham, and now runs Cerberus Capital Management, which was, until recently, co-owned by J. Ezra Merkin, one of the  most important “feeders” to Bernard Madoff’s Mafia-connected $50 billion Ponzi scheme.

While at Gruntal, Cohen grew closer to Milken, and came to be on especially good terms with one of Milken’s top employees, Bruce Newberg, who was later implicated in Milken’s stock manipulation schemes. A reliable source has told Deep Capture that the SEC once investigated Cohen for allegedly trading on inside information provided to him by Milken’s staff at Drexel, Burnham, Lambert.

Nowadays, Cohen is known for demanding strict loyalty from his co-workers, past and present. Some say that these demands border on paranoia (Cohen’s employees are required to sign non-disclosure agreements swearing them to absolute secrecy – for a lifetime), but many of Cohen’s colleagues have benefited. Cohen’s former employees often move to new hedge funds that are in actuality satellites of Cohen’s powerful trading empire.

Sometimes the hedge funds that are staffed by Cohen’s former employees are initially or wholly financed by Cohen himself. Other times Cohen and the hedge funds staffed by his former employees merely trade in the same stocks. It is fair to assume that, collectively, Cohen, his former employees, and others in his network (traders who are tied to Michael Milken or his close associates) have enough fire power to move share prices.

In the 1990s, Cohen’s SAC Capital sometimes bought stocks that were being promoted by D.H. Blair, the Mafia-affiliated brokerage that figured prominently in the prosecution’s case against White Rock Partners, whose traders were mostly Cohen’s former co-workers at Gruntal. Cohen would hold these D.H. Blair stocks even when they had no revenues and had been delisted from stock exchanges. Generally, these kinds of stocks were held by only two sorts of investors – little old ladies who’d been bamboozled by D.H. Blair, and stock manipulators. But who knows, maybe Cohen did the math and figured they were the next big things.

At any rate, Cohen seems to have had some sort of relationship with the Mafia-affiliated D.H. Blair. But D.H. Blair is gone. In its place, we have Paramount Capital, run by Lindsay Rosenwald, the son-in-law of the “fraud king” who founded D.H. Blair.

One employee of Paramount Capital was Joseph Edelman, who, remember, was simultaneously running one of the seven “colorful” hedge funds that was betting big against Dendreon. Meanwhile, Rosenwald was the controlling shareholder in Cougar Biotechnology, which claimed to have a promising treatment for prostate cancer, though that treatment was (and is) largely untested and years away from recieving FDA approval.

In future chapters, we will begin to ask why Michael Milken’s “philanthropic” outfit, the Prostate Cancer Foundation, went to lengths to promote Milken crony Rosenwald’s untested prostate cancer treatment while seeming to dismiss (and perhaps even seeking to derail) Dendreon, whose treatment had received the overwhelming endorsement of an FDA expert advisory panel and was capable (if it had not been derailed) of saving patients’ lives right away.

Another employee of Rosenwald’s Paramount Capital was a man named David J. Kellman. Mr. Kellman was Paramount Capital’s vice president. Prior to becoming the vice president of Paramount Capital, the hedge fund owned by Lindsay Rosenwald, formerly of the Mafia-connected D.H. Blair, Kellman was a top trader for Steve Cohen’s SAC Capital.

I assume that Steven Cohen has been as diligent about maintaining his relationship with Kellman as he has been with all his former employees (a diligence that some describe as “maniacal”). Presumably Cohen also stays in touch with the folks at Millennium Management, the fund that was co-founded by the fellow who sought to assassinate Ivan Boesky, and later became one of the seven “colorful” hedge funds that owned large numbers of put options in Dendreon.

Over the years, Millennium has employed a number of Cohen’s former traders, including Edmund Debler and Steve Lisi, who ran Millennium’s healthcare trading until 2005, when they set up their own fund, which no doubt served as another satellite of the Cohen empire.

Millennium is a highly secretive fund, so it is difficult to know which of its employees were responsible for its Dendreon trades, but perhaps its current healthcare team, like its previous one, are colleagues of  Mr. Cohen. We do know that Millennium has hired a new vice president. His name is Hanming Rao. And he was previously a top trader for Cohen’s SAC Capital.

Millennium, Paramount, Steve Cohen and others in this network often take similar positions in the same stocks. Many of those stocks have been pummeled by illegal naked short selling.

So it should not surpirise that Cohen is the fourth of those seven “colorful” hedge fund managers (the other three being Millennium’s Izzy Englander; Joselph Edelman of Paramount and Perceptive Advisors; and Bernard Madoff) who happened to have the foresight to hold large numbers of put options in Dendreon at the end of March, 2007, right at the time when Dendreon was hit with an unprecedented wave of illegal naked short selling (phantom stock).

Cohen’s lesser known hedge fund, Sigma Capital, held put options on 750,000 shares of Dendreon at the end of March 2007. Another of Cohen’s lesser known hedge funds, JL Advisors, owned 1.3 million shares of Dendreon as of the end of 2006. These shares were dumped sometime before March 31, 2007, contributing to the selling volume that would be created by Paramount Capital employee Joseph Edelman dumping more than 6 million Dendreon shares that he’d recieved by exercising call options  — and by the simultaneous appearance in the marketplace of at least 9 million more phantom shares, the result of rampant naked short selling that the SEC decries as illegal, but refuses to address, except to say that naked short selling is a big secrety — a “proprietary trading strategy.”

* * * * * * * *

To be continued…Click here for Chapter 5.

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