When Dendreon’s FDA application was derailed
simultaneously with a naked short selling attack that flooded the
market with tens of millions of phantom shares, Dendreon’s
supporters went berserk. They sent the government hundreds of
letters complaining about the naked short selling and the apparent
machinations of Michael Milken’s associates. After that, all
but one of the ten hedge fund managers ceased to own “put
options” in Dendreon.
However, the naked short selling continued pretty much unabated
for two years. And in April 2009, Dendreon was once again on the
SEC’s “Reg Sho” list of companies whose
stock was “failing to deliver” in excessive
quantities. Dendreon stayed on that list even after the
company’s CEO announced that results of an Independent
Monitoring Committee study of 500 patients were “unambiguous
in nature…a clear hit” for Provenge.
After the CEO’s announcement, Dendreon’s stock,
which had been as low as $4 weeks earlier, rose to the mid-20s.
Then, on April 28, 2009, just hours before Dendreon was to present
this “unambiguous” data to an all-important meeting of
the American Urological Association, the now legendary Yahoo!
message board post appeared, warning of a “BEAR
RAID” that was to occur at precisely 12:30pm Central time.
Right on cue, Dendreon’s stock tanked 65% in matter of 75
seconds (to $7), within minutes of the moment predicted by that
message.
Within hours after that amazing crash, Nasdaq announced that it
had investigated the matter and decided to let the trades stand.
This was quite remarkable, given that it would have been impossible
for the exchange to determine the identity of that message board
poster and sort through the trading data in such a short period of
time. It is all the more remarkable considering that this
“BEAR RAID” was most likely the work of naked short
selling criminals.
At any rate, it is likely that short sellers, recognizing that
it was now going to be more difficult to prevent Dendreon from
getting FDA approval, used the opportunity of that sharp price drop
to cover their short positions. Some short sellers might also have
used the opportunity to buy shares, hoping to cash in on the
bonanza that was to follow. After the “BEAR RAID,”
Dendreon’s stock price quickly rose above $27.
The night after the “BEAR RAID”, CNBC’s
Jim Cramer (who has begun a “crusade” against the crime
of naked short selling in an effort to distance himself from his
previous efforts to cover up the crime of naked short selling) said
“I’m not qualified to talk about Dendreon.” This
was just two weeks after Cramer had screamed that Dendreon had no
chance of receiving FDA approval. Now, he was no longer commenting
on Dendreon’s chances, but he noted, “I am a big
believer in taking profits when I see a short squeeze. So I am
going to recommend taking profits.”
Some people clearly did take profits. After Cramer’s
comment, the stock started to fall, and by May 8, it was at $19.
Then the buying started again. Quite possibly, some of the hedge
funds that had been short selling Dendreon used the dip to $19 to
purchase still more Dendreon shares. After May 8, the stock rose
back up to around $25, which is approximately where it remains
today. When SEC filings for this period are in, it will be
interesting to see which hedge funds bought shares.
But it will remain impossible to know
who the criminal short sellers were. As far as the SEC is
concerned, that is a big secret – “proprietary
trading strategies.”
* * * * * * * *
After Dendreon reported its data to the American Urological
Association –data that showed almost precisely what the data
showed two years earlier (that is, that Provenge was safe, and that
it lengthened survival times while greatly improving the quality of
life for end-stage prostate cancer patients who would otherwise be
subjected to the misery of chemotherapy) — Milken’s
Prostate Cancer Foundation, which had long shunned Dendreon while
Milken’s allies maneuvered to derail it, finally concluded
that it was time to say something positive about Provenge.
“The PCF is delighted to see evidence of increased patient
survival from Provenge,” the Milken
“philanthropic” foundation said in a press release.
“We share the analysis of Dr. Philip Kantoff, a leader in the
PCF Clinical Therapy Consortium…and a principal investigator
of the Provenge Phase III clinical study. The results validate 16
years of modern research to harness a patient’s own immune
system to fight their prostate cancer and prolong their
lives…”
The Prostate Cancer Foundation continued: “The PCF first
provided funding to Dr. Eric Small…to support clinical
research around measuring immune responses in patients treated with
Provenge…”
In other words, Milken’s “philanthropy”
hadn’t spent two years ignoring, and in some cases trying to
quash Dendreon’s treatment. In fact, the Prostate Cancer
Foundation had supported Dendreon all along!
This is nonsense. What the Prostate Cancer Foundation did not
mention is that Dr. Philip Kantoff, the physician mentioned in the
press release, was on the advisory board of Cougar Biotechnology,
the company that Milken’s “philanthropic”
foundation was promoting as a better alternative to Dendreon.
Moreover, Dr. Kantoff was one of the few physicians to publicly
cast doubts on Provenge. He was never able to say that Provenge did
not work, but when talking to the press at the time of the FDA
advisory panel meeting in 2007, he was dismissive, or at least
confused.
“I didn’t think [Provenge] had a snowball’s
chance in hell of working,” Dr. Kantoff told Forbes
magazine’s Matthew Herper, the journalist who went to lengths
to argue against FDA approval. “I’m still skeptical,
but I think there’s something going on here.” Kantoff
suggested that Provenge could be a “slam dunk,” but
maybe the trial size was too small. Left unmentioned was the fact
the FDA had regularly approved treatments for dying patients when
relatively small trials had shown such stunning results.
As for Dr. Small, he too was on the advisory board of Cougar
Biotechnology. The Prostate Cancer Foundation did indeed give him
funding to measure immune responses in patients treated with
Provenge, but it is not at all clear that Milken’s
“philanthropic” outfit was keen to see Dr.
Small’s study yield positive results. When the study
did yield positive results, Dr. Scher, the chairman of the
Prostate Cancer Foundation’s Therapeutic Consortium (referred
to in the above press release as the “Clinical Therapy
Consortium”), spun them as negative results.
In his letter to the FDA (the one that quickly and mysteriously
ended up in the hands of The Cancer Letter), Dr. Scher quoted Dr.
Small as saying the following: “In summary, this study
suggests that while sipuleucel-T fell short of demonstrating a
statistically significant difference in TTP, it may provide
a survival advantage to asymptomatic [prostate cancer]
patients.” Dr. Small had not written the word
“may” in italics. That was Dr. Scher’s
improvisation, part of his effort to convince the world that
absolute “proof” of efficacy was needed for FDA
approval.
As both Dr. Small and Dr. Scher knew, the “gold
standard” for physicians, and the federally mandated standard
for drug approval, is “survival” —
“substantial evidence” that a treatment may help
patients live longer. Perhaps Dr. Small felt constrained in
challenging Dr. Scher’s misuse of his study. Perhaps he also
felt uncomfortable about joining Dr. Scher, who was, after all, the
powerful chairman of Milken’s Therapeutic Consortium, at the
meeting of the FDA advisory panel that voted on Provenge in March
2007.
Dr. Small was supposed to speak on behalf of Provenge at that
panel. Perhaps this concerned the folks at the Prostate Cancer
Foundation. Either way, Dr. Small was a no-show at the panel that
day.
He apologized – something about
a hitch in his travel plans.
* * * * * * * *
In May 2009, while Milken’s Prostate Cancer Foundation was
rewriting history, Milken’s hedge fund crony, Steve Cohen,
who was one of those seven hedge fund managers who had bet big
against Dendreon after the advisory panel meeting in 2007, reached
out to Care-to-Live, the grass-roots organization that had done so
much to highlight the connections among Milken’s
“philanthropy,” Milken’s investments, and
Dendreon’s travails
On May 19, one of Care-to-Live’s founders received an
email from an employee of CR Intrinsic Investors, which is one of
Steve Cohen’s hedge funds. “I’m an investor
in biotechnology and pharmaceutical companies and I’m
interested in understanding the patients perspective on Provenge
and any other therapies in development…,” the email
began. “Would you or someone from Care-to-Live be available
speak with me…? I have spoken to a number of academic
thought leaders, but I’d like to better understand what the
patients want…”
And by the way, “I’m happy to provide compensation
for time spent speaking with me if that is of interest.”
Milken-affiliated hedge funds already
have analysts and journalists regurgitating their party line on
command. They also have doctors on the payroll. Might as well put
the troublemakers on the payroll, too.
* * * * * * * *
Or perhaps Cohen is genuinely thinking about investing in
Dendreon. Perhaps he already has. The intentions of this network
remain a matter of some speculation.
Much of this speculation focuses on Dmitry Balyasny, the Russian
“whiz kid.” As recently as March of this year, when
they filed their last SEC documents, Balyasny’s hedge funds
– Balyasny Asset Management, BAM and Visium – held
around 3 million put options in Dendreon. Simultaneously, these
hedge funds owned an almost equal number of call options. It is
possible that Balyasny and his associate, Jacob Gottleib, were
implementing a split-strike pricing strategy – selling out of
the money calls and buying out of the money puts. The effect is to
create a large synthetic short position.
But SEC documents show that during much of the past two years,
Balyasny’s funds also owned large numbers of Dendreon shares.
These could have been shares that they bought to cover short
positions. Or it could be that they owned shares to gather proxy
votes and put pressure on Dendreon’s management to act in
ways that might not be good for the company.
Whatever the case, Dendreon’s
latest Schedule 14-A, filed on April 30, showed that Balyasny
(previously one of the seven hedge funds with large bets
against Dendreon) had become Dendreon’s largest
shareholder, with a 9.8% stake in the company. The second largest
shareholder was Capital Ventures International, the unit of
Susquehanna that did the PIPEs deal with Dendreon. Visium Capital
owned 5.5% of Dendreon. Meanwhile, Joseph Edelman, the hedge fund
manager who was employed in 2007 by Lindsay Rosenwald, formerly of
the Mafia-connected D.H. Blair, has bought at least 2 million
Dendreon shares.
In addition to those purchases, many of the Milken network hedge
funds that bought Dendreon’s convertible bonds now have the
capability to convert, so they, too, might soon count
themselves among Dendreon’s largest shareholders. Altogether,
this network may already control (or have the ability to convert
into control of) as much as 30% of the company.
If Balyasny had acquired more than 10% of the company, he would
have been subjected to reporting requirements designed to identify
hostile takeover attempts. Given that he acquired just under 10%,
and given that he nowhere declares his co-ownership of Visium,
which adds 5.5% to his stake, it is possible that Balyasny and
others in his network have considered seizing control of the
company by stealth.
Incidentally, this is similar to the modus operandi of
the Milken network in the 1980s. As most every book on Milken
recounts, affiliated investors (some combination of Milken, Ivan
Boesky, Carl Icahn, Princeton-Newport, John Mulheren, and
others) would each buy, say, 4.9% or 9.8% of a company without
declaring themselves to be affiliated investors. In some cases,
Milken would “park” stock (e.g. Princeton would
secretly buy stock on Milken’s behalf) in order to conceal
that he had any ownership at all.
By secretly holding large blocks of shares, the network was able
to acquire controlling stakes while bypassing regulatory
requirements to declare such positions. Besides putting them in a
position to manipulate prices, Milken and friends then put pressure
on companies’ managements by quietly letting it be known that
they had, as a group, a controlling number of proxy votes.
If Milken’s friends come to control Dendreon,
Milken’s “philanthropic” foundation will no doubt
continue to articulate its new position of being
“delighted” that the data shows that Dendreon’s
treatment is safe and effective (which is the same thing the data
showed two years and 60,000 American deaths ago). And if the Milken
network takes over Dendreon, perhaps Michael Milken will, in the
name of “philanthropy,” convince his government minions
to grant approval to Provenge, so that it can be administered to
the patients who so desperately need it.
But that should not cause us to ignore the ordeal that Dendreon
has endured during these past few years. And we should demand an
end to a status quo which lets Wall Street miscreants,
cheats, and manipulators (and not free markets) decide which
companies survive unmolested, and which will be crippled or killed
off entirely.
But it is not surprising that criminals see fit to maim public
companies.
Consider that it is impossible to buy life insurance on another
person’s life. The legal principle has developed that one can
only insure something in which one has “an insurable
interest.” But imagine that this were not the case. Imagine
if it were possible for people to buy insurance on other
people’s lives. One can see that there might evolve a type of
criminal who would buy life insurance on the lives of others, and
then arrange for those people to die.
One can even imagine that, as society wised up to this practice
of buying life insurance and then manipulating outcomes, such
criminals would evolve new tactics towards the same end. For
example, the criminals might target newborn babies in hospitals,
because babies are vulnerable, and it would be difficult for anyone
to know for certain whether they were dying naturally, or as a
result of criminals manipulating outcomes.
One could even imagine that the most sophisticated of these
criminals would come to target newborn babies who were already
sick, because manipulating their medical outcomes in order to cause
their deaths would leave the slightest statistical footprint
possible.
In our society one cannot buy life insurance on another person,
but one can buy “life insurance” on a company: that is,
one can make a bet that a company will fail, and collect on that
bet when the company dies. It is the contention of Deep
Capture that there are criminals who take out life insurance
policies against companies, and then manipulate their outcomes so
as to collect on those policies.
And just as we can understand the logic of criminals focusing on
newborn babies, so too can we understand why the financial
criminals have learned to focus on small, early-stage public
companies. And to extend the morbid metaphor one last step: just as
the criminals might focus on newborns who are already sick, because
their outcomes are already in the most doubt (making the criminal
manipulations hardest to spot), so too have the financial criminals
learned to focus not just on early-stage public companies, but on
early stage public companies working in the field of
biotechnology.
That is because in biotechnology the difficulties in valuing a
company are at their greatest. There is often little to no revenue.
The idea behind the company may be nothing more than the
theory of a scientist. No one knows whether it will work. If it
works, no one knows how long it will take to prove that it works.
And even if it can be proven to work, no one knows how long it will
take to clear all the legal and regulatory hurdles it will face.
Such companies are favored targets for manipulators because it is
easy to manipulate the truth when no one knows the truth, and
whatever truth there is lies behind so many veils.
In the case of Dendreon , the truth was hard to miss. It was
more than a company with a blockbuster treatment. It was the first
company in decades to develop a medicine that could truly
revolutionize the way that doctors treat cancer. The company had
gathered its data, and the data was conclusive (to a 95% confidence
level): Provenge was safe and effective. A panel of experts
assembled by the FDA had declared that the treatment should be
approved.
So when naked short sellers attacked, and the treatment was
derailed, it was obvious that there had been foul play. Hundreds of
concerned citizens took it upon themselves to investigate, and
document, the footprints of the miscreants. As a result we have
been able to present a highly discernible, if admittedly imperfect,
picture of their trail.
But we must ask: How many other small biotech companies have
been victimized in less obvious ways? How many companies were like
the babies in our morbid metaphor — snuffed out before they
could demonstrate their potential; killed by criminal naked short
sellers and their captured accomplices (journalists, regulators,
doctors) who successfully pled innocence, saying the companies died
because they were sick or weak? And how many of those murdered
companies, weak or not, had medicines that could eventually have
improved health and saved lives?
Our morbid metaphor, you see, is not entirely metaphor. Real
people have died.
In answer to the question of how many people have died, we know
only from the data that abusive and illegal short selling has
affected many hundreds of small biotech companies with all manner
of medicines. We know that the vast majority of those companies are
now gone, and that some number of them, if left to the rigours of
the market, but not to the whims of criminal short sellers, would
have one day delivered their medicines to patients.
But, of course, we do not know who the
criminal short sellers are. According to the Securities and
Exchange Commission, that is a big secret –
“proprietary trading strategies.”
* * * * * * * *
This is part 15 of a 15-part series.
The story is published in its entirety at DeepCapture.com. It is a
story about the travails of just one small company, but it
describes market machinations that have affected hundreds of other
companies, and it contains a larger message for anyone concerned
about the “deep capture” of our nation’s media
and regulatory bodies.
Mark Mitchell is a
reporter for DeepCapture.com. He
previously worked as an editorial page writer for The Wall Street
Journal in Europe, a business correspondent for Time magazine
in Asia, and as an assistant managing editor responsible for the
Columbia Journalism Review’s online critique of business
journalism. He holds an MBA from the Kellogg Graduate School of
Management at Northwestern University. Email:
mitch0033@gmail.com