This is Chapter 1 of a 15 chapter series. The entire series is listed here
This story, like too many others, begins with Jim Cramer, the CNBC personality, making “a mistake.”
On September 26, 2005, Cramer announced to his television audience the sad news (punctuated by
funny sound effects – a clown horn, a crashing airplane) that Provenge, an experimental treatment for
prostate cancer, had flopped. Thousands of end-stage patients had been pinning their hopes on
Provenge, but according to Cramer the treatment had just been rejected by the Food & Drug
Administration. It would never go to market.
This seemed odd, because Dendreon (NASDAQ: DNDN), the company developing Provenge, had not yet
submitted an application for FDA approval. As everybody in the biotech investment community knew, in
fact, Dendreon had only recently completed Phase 3 clinical trials and probably would not face scrutiny
from an FDA advisory panel for at least another year.
As for the likelihood that the advisory panel would eventually vote in favor of Provenge, the odds looked
good. The Phase 3 trials had demonstrated that Provenge significantly increased patient survival with
only minimal side-effects, such as a few days of mild fever. Moreover, Provenge was an altogether
different sort of treatment – one that fought tumors by boosting patients’ immune systems rather than
subjecting them to the ravages of chemotherapy.
Provenge was not a magical elixir of life, but Dendreon was doing more than just developing a new
technology. It was pioneering a treatment that could revolutionize the way that doctors fight prostate
cancer. By some conservative estimates, the market for Provenge alone could reach more than $2 billion
a year. If the treatment could be applied to other cancers, the market would be even larger.
The morning after Cramer declared Dendreon and Provenge to be dead in the water, Mark Haines, the
anchor of CNBC’s “Squawk Box” program, apologized for Cramer’s “mistake.” That afternoon, at an
important UBS investor conference, Dendreon presented still more promising data. This would normally
have given a significant boost to the company’s stock price, but the value of Dendreon’s shares stayed
flat for the day, and then began a gradual decline.
This had partly to do with Cramer. The next evening, on his “Mad Money” program, the journalist (or
entertainer, or self-confessed criminal, or… whatever Cramer is) acknowledged that the FDA had not yet
rejected Provenge, but drawing upon his medical expertise, Cramer maintained that Provenge was not
effective. In characteristically level-headed fashion, he announced that Dendreon shareholders were
drunken, carousing, gambling Falstaffs who “might as well take their money to Vegas.”
Dendreon, Cramer added (rather ominously), was a “battleground stock.”
What Cramer meant by “battleground” has since become all too apparent. For the past four years
Dendreon has been one of the most manipulated stocks on NASDAQ. During some periods the volume of
trading in the shares of this little company has exceeded the trading in America’s largest corporations – a
good sign that hedge funds have been churning the stock to move the market.
And with every burst of good news, the company has faced waves upon waves of naked short selling –
hedge funds illegally selling millions of shares that do not exist to flood the market and drive down the
stock price. Along with the phantom stock, people seeking to diminish Dendreon have deployed false
financial research, biased media, bogus class action lawsuits, internet bashers, dubious science, and
other familiar weapons of the “battleground.”
The denouement of this stock market “battle” occurred recently, on April 28, 2009, when Dendreon was to
present all-important results at the American Urological Association’s annual meeting in Chicago. Some
days prior, Dendreon’s CEO, Mitch Gold, had announced that the results of an Independent Monitoring
Committee study were “unambiguous in nature…a clear hit” for Provenge.
If a CEO uses language like that and does not produce the data to back it up, he is guaranteed a visit
from the Securities and Exchange Commission. Unless the CEO or his allies have juice with the SEC, the
commission will usually charge the CEO with making false statements to pump his stock. Gold was
unlikely to take that risk, so it was clear to most people that the meeting in Chicago was going to be a
triumph for Dendreon.
And it indeed it was. The data presented that day showed that Provenge lowers the risk of prostate
cancer death by 22.5 percent, with little or no toxicity. With a few notable exceptions (some of whom are
to appear as prominent characters in this story), nearly every medical professional on the planet now
concurred that Provenge was a blockbuster drug – one that should receive FDA approval and make
Dendreon a highly profitable company.
But the hedge funds weren’t finished. In the days following Gold’s announcement, short sellers piled on
with a vengeance, returning Dendreon to the leagues of the world’s most heavily traded stocks. The firm
once again found itself on the SEC’s “Reg Sho” list of companies whose stock was “failing to deliver” in
excessive quantities –a sign of illegal naked short selling.
On CNBC, meanwhile, Cramer had hammered Dendreon. On April 6, 2009, amidst ear-rattling sound
effects — dogs fighting, and (inexplicably) a baby crying — Cramer had said “I don’t like Dendreon.” He
had shouted that Provenge had no chance of getting FDA approval and Dendreon shareholders should
“SELL! SELL! SELL!”
Then, on April 28, at 10:01 am Central time — just hours before Dendreon’s triumph in Chicago – an
anonymous message board author on Yahoo! Finance posted this message: “HIGH PROBABILITY OF
MASSIVE BEAR RAID…DNDN [Dendreon] could easily drop 50% on a massive bear raid…its coming
today@12:30 pm central.”
Just minutes before 12:30 pm central, Dendreon’s stock price began to fall. It didn’t just fall–it nosedived
from $24 to under $8 … in 75 seconds. During a period of 75 seconds, more than 4,000 trades were
placed, totaling 3 million shares, or about 50% of Dendreon’s (spectacularly high) average daily volume.
Given that the message board poster knew what was coming more than two hours beforehand, and
predicted the timing almost precisely, it is a safe bet that this was a coordinated, illegal naked short
selling attack. And just in case you still didn’t get this – it caused Dendreon’s share price to lose more
than 65% of its value – in just 75 seconds flat.
“My desk was floored,” one trader wrote on a message board. “We all just stood up swearing, headsets
and other assorted desk items being thrown at monitors…I haven’t heard that much swearing in years…”
It was, say others, one of the strangest occurrences in Wall Street history.
In fact Dendreon had witnessed even stranger occurrences – brutal naked short selling attacks occurring
simultaneously with antics that simply have no precedence in the world of medicine. As will be described
presently, these strange occurrences nearly destroyed Dendreon in 2007, and have since then prevented
patients from having access to Dendreon’s treatment – a treatment that, as will become clear, should
have reached the market some time ago.
And from the day of that first strange occurrence in September 2005, when Cramer predicted that
Dendreon would become a “battleground” stock, to the latest strange occurrence in April 2009, when
Dendreon’s stock nosedived by 65% in 75 seconds, more than 60,000 men in the United States died of
So we must ask: Who did this? Who stood to profit from Dendreon’s demise? Were the extremely odd
delays in getting Provenge to market purely accidental? Or, were the remarkable trading patterns and
volatility accompanying those delays in fact an expression of stock manipulation? If so, who were the
manipulators? Since we know that Dendreon experienced naked short selling, and naked short selling is
a crime, who are the criminals? And when much of the medical community rallied around Provenge last
month, which manipulators crashed the stock to single digits – possibly to make the company ripe for a
hostile takeover by the very people who once sought to destroy it?
It is one of the peculiarities of the Securities and Exchange Commission that while it is ever-eager to
hassle CEOs of small companies, it goes to considerable lengths to protect billionaire hedge fund
managers. The SEC has publicly stated that naked short selling is a crime. It has said that it has evidence
that illegal naked short selling occurs on a large scale and does serious damage to public companies. But
it almost never says which hedge funds are responsible. It never says who is flooding the market
with phantom stock.
As far as the SEC is concerned, it’s all a big secret. As the commission states on its website, the naked
short selling statistics “of individual firms and customers is proprietary information and may reflect firms’
trading strategies.” It seems not to matter to the SEC that those “proprietary” trading strategies are illegal.
Meanwhile, the SEC does not require hedge funds to disclose even their legal short positions. As a result,
it is impossible for any journalist to present photo-perfect portraits of attacks on companies like Dendreon.
But brokers and other sources can tell us who some of the short sellers are. And by analyzing public
information (such as data that hints at various hedge funds’ options strategies) we can make educated
guesses as to who has the most to gain from a company’s decline. We can also come to understand the
relationships that bind certain hedge fund managers and miscreants, and ask whether these people might
have been acting in concert.
If the relationships are few in number, or separated by six degrees, we must abandon the project – a
spatter of dots on the wall is not a work of art. But if the dots are plentiful, precise, and show a clear
pattern, then we have something valuable – a sort of pointillist painting of market behavior.
In the case of Dendreon, we have such a painting. And when we look at this painting, with its dozens of
data points, we can see quite clearly the familiar smirk of Michael Milken, the famous “junk bond king”
and criminal stock manipulator.
During the times when Dendreon has been most evidently a “battleground stock,” nearly every hedge
fund known to have placed large bets against Dendreon and a significant number of Dendreon’s
detractors — esteemed medical professionals, financial research analysts, government officials, and Jim
Cramer himself – have been tied to Milken or his close associates.
Most of the hedge fund managers who appear in this story are part of a tight network that has been in
operation – exchanging information, attacking the same stocks, employing the same tactics – for upwards
of twenty years. This is the same network that attacked the major financial institutions in 2008, possibly
contributing to the collapse of the American financial system. And though I recognize that some people
find this hard to absorb, I will present further evidence that a good number of the people in this network
have ties to organized crime – the Mafia.
As for Milken, he was released from prison in 1993, at which point he went to considerable lengths to
rebrand himself as a “prominent philanthropist.” One of the “philanthropic” outfits that he founded is the
Prostate Cancer Foundation, and for this he has received widespread applause from the media,
government officials, and the business elite. Because Milken has effectively bathed himself in the glow of
his “philanthropy” (and because his public relations machine is so indisputably clever), many people find
themselves saying that Milken’s financial crimes were but misdemeanors – the slight over-exuberance of
a “market innovator.”
But the Dendreon story raises serious questions about the nature of Milken’s “philanthropy” – and about a
society that venerates and even seeks guidance and favor from the most destructive financial criminal the
world has ever known.