Dendreon: I Want the Truth

 |  About: Dendreon Corporation (DNDN)
by: Karuna Kanagaratnam

I feel like Tom Cruise in, “A Few Good Men” asking, “…I want the truth...” and being told, “…You can’t handle the truth….”

Last week in, “The Short Story” I speculated how if I were I large hedge fund I would manipulate the price of Dendreon shares. I had written that Institutions owned 27 million shares, but I had missed the mutual fund and other major holders. According to CNBC 63.9 million shares are held by large block owners.

Dendreon has about 83 million shares.
Large Block Owners: 63.9 million shares.
Passionate long time share holders: 20 million shares.

On May 9th, Dendreon traded over 131 million shares or nearly 159% of its total shares.
Only Cisco managed to edge out Dendreon with 151 million shares after reporting earnings a day earlier. Cisco has over 6 Billion shares outstanding and it traded about 2.5% of its shares.

Since May 9th, in the last SIX trading days Dendreon has traded 364 million shares! (The value of those transactions at an average price of $6 a share is $2.2 Billion). Since March 30th, Dendreon has traded over 1.2 billion shares or 15X all available shares. (The values of those exceed my calculator’s available spaces).

• Who is buying in the aftermath of a negative FDA outcome and all analysts downgrading the stock?
• There were 33.9 million shares short as of April 10, 2007…or was it more?
• Why are they buying these shares?
• Where are these SHARES coming from?

If you own Dendreon shares in your brokerage account, how do you know if they are real? (Just because your account shows 1,000 shares, do they exist?)

I know they took your money, but are those shares real? How do you know if one brokerage has sent the other real shares in return?

If you owned a house can it be sold to many buyers? (Except as time shares)

How many first mortgages can you get on your house?

If you got several mortgages, is it okay as long as you pay them back?

All these lead to my last question: exactly how many shares can be shorted in Dendreon?

I wrote to SEC on May 10th and have yet to receive a response…
I have written to major financial publications…no response…
I have written to journalists covering Dendreon…again, no response…

This search took me to the SEC website, and a brief on regulation SHO. Here are some points:

Is all naked short selling abusive or illegal?

When considering naked short selling, it is important to know which activity is the focus of discussion.

• Selling stock short without having located stock for delivery at settlement. This activity would violate Regulation SHO, except for short sales by market makers engaged in bona fide market making. Market makers do not have to locate stock before selling short, because they need to be able to provide liquidity. However, market makers are not excepted from Regulation SHO's close-out and pre-borrow requirements.
• Selling stock short and failing to deliver shares at the time of settlement. This activity doesn't necessarily violate any rules. There are legitimate reasons why a seller may fail to deliver on the scheduled settlement date.
• Selling stock short and failing to deliver shares at the time of settlement with the purpose of driving down the security's price. This manipulative activity, in general, would violate various securities laws, including Rule 10b-5 under the Exchange Act. Regulation SHO does not address this issue.

Well there are more escape holes to naked short selling at the SEC Website than the Beatles singing, “…4,000 holes in Blackburn, Lancashire…”

It seems, all these transactions go through Clearing Agencies that are self-regulating. Apparently, the cat is guarding the henhouse.

Some additional excerpts from SEC website:

Clearing Agencies

Clearing Agencies are self-regulatory organizations that are required to register with the Commission. There are two types of clearing agencies -- clearing corporations and depositories. Clearing corporations compare member transactions (or report to members the results of exchange comparison operations), clear those trades and prepare instructions for automated settlement of those trades, and often act as intermediaries in making those settlements…..
Clearance may be accomplished on a trade-by-trade basis or through netting of several trades either bilaterally between the two counterparties or multilaterally among all members of a clearing corporation to yield balance orders reflecting a single day's trades or all open positions to date (continuous net settlement or "CNS").

Well there is more. There is another list compiled by NASDAQ that has failed to deliver the shares. You can find ithere; Dendreon has been on the list for the last 39 days.

“May 16 (Bloomberg) -- The following is a list of "threshold securities'' from the NASDAQ Stock Market, published daily in compliance with the U.S. Securities and Exchange Commission's Regulation SHO.

The list consists of stocks for which sellers failed to deliver 10,000 shares or more in the past five trading days and the level of ``fails'' is a minimum of 0.5 percent of the shares outstanding. Securities are listed alphabetically by ticker.

securities list

I wonder about the ramifications of an Approval letter vs. the Complete Response Letter on May 9th to all the short positions.

What would have happened to the price of the stock if all the brokerages had to clear their accounts? (Cover their Naked Positions)

Was there enough at stake to use their political influence to change FDA’s ruling?

Do those who shorted Dendreon have enough political prowesses to override Dr. Andrew von Eschenbach who promised so much - and delivered nothing?

All these questions lead me back to, “A Few Good Men".

Colonel Von Eschenbach, did you order the Complete Response Letter?

You don’t have to answer that question…I will answer the question…

You want answers....
I think I am entitled….
You want answers….
I want the truth…

You can’t handle the truth!

On my next article, I will share my discoveries of certain panel members, their highly irregular posture of writing to tabloid newsletters, and their conflict of interests.

Disclosure: Author has a long position in DNDN