Dendreon: I Want the Truth

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.

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

Comments

[CrossProfit_:]

As we stated on our site "its not over until the fat lady sings".
You don't need to go into conflict of interests to figure out what has transpired and where this is heading. Patience is the key.

2007 May 17 08:50 AM

[Karuna Kana...:]

I heard her warming up her vocal chords...
Thanks for writing..

2007 May 17 10:02 PM

[Dan Gseekin...:]

Excellent post, KK.

You might have forgotten to mention the new FDA regulations that prohibit the commissioner from approving drugs of sponsors listed on the REGSHO list. Moreover, FDA panel members with COI (Conflict Of Interest) should influence the FDA's final decision by posting their opinions on Cancerous magazines and are authorized to overrule any Panel decision if such decision is against their personal financial interest and/or against the financial interests of their sponsors (WS firm and/or Big Pharma) and/or the interests of offshore hedge-funds owned by their family members. A "COI Panel Member" is entitled to force the FDA to submit a CR letter to companies who sponsor novel drugs that would compete against a drug that the "COI Panel Member" is the lead investigator, especially if this drug is in a late stage clinical trial and that it demonstrates lower efficacy and higher safety concerns in comparison to the novel drug THAT HAS TO BE APPROVED IN A NON-CORRUPTED ENVIRONMENT.

2007 May 17 08:52 AM

[Karuna Kana...:]

This story is made for movies..One of the challenges is to capture the essence of what is going on without writing twenty pages.

Seems to me you have done your research. Thanks for the comments.

2007 May 17 10:04 PM

[Saul Sterman:]

There are many conspiracy theories afoot. This is natural when there has been such a large movement both upwards and down again in a stock. A lot of people are hurting badly and many have wittingly or unwittingly profited from what has transpired.

The bottom line is that all of theses theories, even if true, are short lived.

The FDA is not the only game in town. The FDA knows this, DNDN knows this, brokers know this and so do the hedge funds. Competition is the best remedy for conspiracy.

If you believe the company, and believe the product to be viable, then DNDN will go to the EU or Japan. Once approved there, it is just a matter of time before it is approved in the US. Likewise, the EU and JP are not the only games in town. Imagine if you will that the Israeli Ministry of Health approves Provenge and it is used successfully for two to three years. US patients start going to Israel for treatment… do you get the picture?

I am not saying that this is the case here, but you should follow DNDN's actions. If they start the process from scratch in another country with a respectable reputation, you will know the answer. If it looks like they are going to succeed, the FDA will not want its reputation tarnished and will come around.

Patience is the key. If you believe in the company and product, you have a second chance to get a piece of the action. If you don't believe the company, then stay away. You can only get hurt when the bullies play (if this indeed is the case).

2007 May 17 09:25 AM

[Karuna Kana...:]

Thank you for the comments. I like your website.

I agree that we(US) are not the only game in town. That is my larger concern. People are already traveling abroad to seek treatment.

This is worth watching (takes a couple of minutes to load) www.channel4.com/playe...

Have to click play after commercial. Ironic, US build walls and China tears down theirs…

2007 May 17 10:00 PM

[Cameron Baird:]

Bravo! Please do not relent. Make sure that you include all the info you can on the personalities involved. All of the board members who voted, their full names, their e-mail addresses (extremely important) who do they work for when their not screwing the public. Dr Fleming for example who works for the University of Washington and recused himself from voting and then went out of his way at the eleventh hour to voice his opinions. When we (the screwed) start an organized effort via computer and phone lines to raise hell, things will change. Every person who lost a penny in this endeavor should be outraged and make it their personal mission to right the wrong. I dont know what kind of access you have but I'm praying you can deliver on this one thing. A complete list of all involved including govt agencies and the specific beaurocrats involved and hedge funds/mutual funds banks etc that may have manipulated the stock. Email mailing lists!!! What are their titles? How are they involved?

In closing I would like to suggest that you get your affairs in order. Sounds silly doesnt it.

I dont think so.

2007 May 17 09:45 AM

[Karuna Kana...:]

This is big money and politics.

2007 May 17 10:07 PM

[prenumb:]

When numbers look incorrect, they are most likely incorrect, to paraphrase...

To understand check IBM: www.cnbc.com/id/158372... or
XLNX www.cnbc.com/id/158372... or many other companies, and you'll clearly see that "Total Number of Shares Held" is not what it seems. It is often much bigger than all shares outstanding, and can not be attributed to naked shorting, since they are bigger than all outstanding + all shorted....

Also the %tages shown are similarly suspect.

2007 May 17 10:12 AM

[Karuna Kana...:]

While I agree with your statement, I am not aware of a single company that is trading with such disparity.
82 million Shares and the Volume of 1.2 plus billion shares traded since March 30, 2007.

2007 May 17 10:09 PM

[Phil Anthropy:]

I have read about "failure to deliver" issues with naked shorts. My readings indicate that this happens on a larger scale than most people realize, that the SEC is fully aware of it and does little or nothing, that investors don't know whether the shares in their stock accounts are real, and that the risk is on the shoulders of small investors. The moral of the story is that the stock market, as with most other big business, is controlled by large, vested interests, and they can do what they want without fear of reprisal. The government does not have the resources to stop them, in my opinion, and may indeed be more a partner than an adversary. If small investors fail to protect themselves with long puts or other downside insurance, the risk of catastrophic declines is omnipresent. Bear raids on stocks are easy money for market manipulators (not, of course, that markets are manipulated -- perish the thought).

2007 May 17 01:05 PM

[dennisslosser:]

race betw one -legged duck & chicken & duck wins u know the mob was there!!!!!!!!!!!!!!!!!...

2007 May 17 04:00 PM

[pavlov:]

Watch this...I found it last night and was flabbergasted!

www.businessjive.com/n...

2007 May 17 05:52 PM

[Karuna Kana...:]

Thank you. I have viewed it before. I put the following to your comment yesterday.

I would also recommend readers of the above excellent article to watch Jim Cramers video from TheStreet.com on the same topic where he describes how Hedge Funds do this manipulation. (Link below, if you haven't already seen it):

videoplayer.thestreet....;channel=Cramer+On+Dem...

2007 May 17 10:15 PM

[Andrew Hor...:]

Kar:

I think that your information is well researched and it is rather thought provoking. I am a long holder as well as my clients and I have written a few articles on this subject (DNDN) as well. I look at your blog and I see nothing about who you are and if you are long for just you, clients or ????

I think that if you expand your bio it will bring much more credibility and maybe it will open a few more eyes. Still, while I think about the oddities with this mess, I wonder why these seemingly respected Doctors and other panel members voted the way they did... Truth be said, it was a few LOUD remarks that gave the panel the PAUSE signal and 50% of them have a clear conflict. Actually, so much so that one has to ask how they can have such incredible cahonayes to manipulate the system with so many watching (not to mention the lives at stake). Another truth is that you will never get the truth on this one. There is way too much confusion created by the ones with the $$$$$$. So, as you, I am sorely dissapointed with the outcome of the FDA meeting and feel that there is something not quite right. I am not so sure that there is anything we can do but wait until the DNDN delivers their next result to the FDA and the results should speak for themselves.

You have to admit that the biggest concern is that the safety data was very encouraging and even if Provenge was only mildly effective, there should have been leniency as there are limited viable alternatives to PC patients at this time. Why not at least approve with an oversight requirement while the company continued testing. This would have allowed for all to be happy. Again, it was not seen as harmful which should be the first concern of any drug on the market. (As even the placebo effect can help the body mend itself in some situations)


As per the short selling issue: I have seen first hand the process of shorts unable to be delivered. Trading firms offer their clients shorts up to , say 10,000 shares on a stock for almost all stocks that trade. Then, when it actually comes to the part about delivery, it never happens. The requirements to short are very clear and at the very essence, is the ability for brokerages to lend "eligible" stocks to the short sellers from other accounts, which also has clear rules that were created by the SEC.


V. Rule 203 — Locate and Delivery Requirements for Short Sales
A. "Locate" Requirement

We are adopting proposed Rule 203, with some modifications, after considering the comments received.53 As adopted, Rule 203(b) creates a uniform Commission rule requiring a broker-dealer, prior to effecting a short sale in any equity security, to "locate" securities available for borrowing. For covered securities, Rule 203 supplants current overlapping SRO rules. Specifically, the rule prohibits a broker-dealer from accepting a short sale order in any equity security from another person, or effecting a short sale order for the broker-dealer's own account unless the broker-dealer has (1) borrowed the security, or entered into an arrangement to borrow the security, or (2) has reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due.54 The locate must be made and documented prior to effecting a short sale, regardless of whether the seller's short position may be closed out by purchasing securities the same day.55 The rule provides for some limited exceptions, including for short sales effected in connection with bona-fide market making.

Therein lies the biggest problem. While Rule SHO attempts to limit the naked shorts, the exemptions cover those that are most likely to participate in the transactions, namely market makers and others with large $$$$ that are moving the markets. Hedge funds can also be considered market makers in some instances, as they may be part of a bigger brokerage operation.

THE SEC COMMENTS ON NAKED SHORTS:
"Naked short selling, however, can have negative effects on the market. Fraudsters may use naked short selling as a tool to manipulate the market. Market manipulation is illegal. The SEC has toughened its rules and is vigilant about taking actions against wrongdoers. Fails to deliver that persist for an extended period of time may result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. Regulation SHO is intended to address these effects by reducing the number of potential failures to deliver, and by limiting the time in which a broker can permit a fail to deliver to persist. For instance, as explained above, Regulation SHO requires brokers and dealers to close-out the open fail-to-deliver positions in "threshold securities" (i.e., securities that have experienced a substantial number of extended delivery failures) that have persisted for 13 consecutive settlement days."[4]

As always, a rule without consequence is nothing more than a friendly suggestion. We need to stop being so nice....

Andrew Horowitz, CFP

www.thedisciplinedinve...

2007 May 18 01:28 AM

[Karuna Kana...:]

Andrew,

I have disclosed on my other Dendreon articles that I am LONG(an unhealthy amount) on the stock. This one was emailed directly to the editor and my position was not disclosed.

I have enjoyed your last article on DNDN with the slide from Dr. Nicole Provost's presentation.

We have seen Eli Lilly get Gemzar approved behind closed doors after panel voted against it 9-2 last year. FDA was mum on the decision. My concern though is that DNDN lack the experience, political clout, and savvy to pull this off. FDA's CR letter seems to be an invitation to do just that. The point being FDA didn't shut the door. I think that any of the BIG PHARMA's with a similar situation would quietly work behind the scenes and to quote, Larry the Cable Guy, "Get her done".

I think Dendreon has terrific and wonderful scientists who are not as business savvy. That is a difficult task as you must, "Swim with the Sharks without being Eaten Alive". We have also seen guffaws from simple press release of layoff's turned into a reporter(Dan Richman of Seattle PI-who I spoke to and he quoted me as saying that delay could kill Dendreon) quoting DNDN as saying that, "Provenge won't be ready until 2009 at the earliest." He relented and printed a retraction from share holders contacting him directly and challenging the quote.

Biotech Stock Research Letter today says, that the only hope is through congressional hearings.
The COMPANY is not capable of pulling this off. It must come from its supporters, patient advocacy groups, etc.

I think you can help along with your clients by contacting your congressman, etc. That is what I am doing.

This is worth watching (takes a couple of minutes to load) www.channel4.com/playe...

Have to click play after commercial. Ironic, US build walls and China tears down theirs…

Through out history the establishment has stood in the way of progress. I think in time these technologies will find their way...Unfortunately, many who need it now won't be here...

2007 May 18 11:53 AM

[pavlov:]

16MAY07
8:30 pm.

As above...I found my answer later last night.
I wrote this to you yesterday before I found the truth.


Fantastic article!
I'm not much into subscribing to newsletters but your insightful, reviting, and thought provoking article made me do it.
Now...for my 2 bits...
I was a broker for 12 years and the last 4 years I was a broker specializing in shorting.
Since I was based in Canada I was able to get away with a lot more than a US broker could.
I handled accounts for some hedge funds physically- based in the US but legally based in tha VVI's.
I ALWAYS had to check if the stock was available for shorting and was always told that it was a go.
When I started getting pressure from my compliance officer as to the legality of such, I called NASDAQ's law department and spoke to their senior lawyer who told me ( in writing) that the onus was on the US brokerage firm, which took the order, to deliver.
I and my firm were off the hook...
However...
there were times when we WERE bought in.
At which point does the trade become naked shorting?
I remember doing some trades where I would buy the convertible debenture and freely short the stock and this was not declared as a short position...legally.
Is it the same when dealing with options?
Your article seems to suggest that.
I certainly hope not!
I am not against shorting stocks.
I see it as a necessary function from keeping scams and manipulations within a limit...but there should also be a limit to the amount of shares you should be able to short of any given company.
I am currently short INSW and haven't been bought in despite the fact that there are no shares in the float. I imagine that I can continue to short it ( I'm not since it has become extremely obvious to me that it is being manipulated).
The option scenario though would allow be to buy calls to cover a never ending amount of shorting?
Please clarify for me if you can.
I DO look forward to reading your future articles since it is hard to find so much insight in such few words.

Not your brother but a new fan,

Dr. MEM (Pavlov)

2007 May 17 06:13 PM

[pavlov:]

LOOK AT WHAT HAPPENNED TODAY!!!
A FAKE QUOTE SENT THE STOCK PLUMMETTING!


Fake article:


By DAN RICHMAN
P-I REPORTER

Seattle-based Dendreon Corp. on Thursday cut 15 percent of its 250-person workforce, idling about 40 staffers, most of whom were preparing to market the now-delayed anti-prostate cancer drug Provenge, said spokeswoman Monique Greer.

"Due to recent news from the Food and Drug Administration, we won't be commercializing Provenge immediately, as we had thought," Greer said. "All the employees, and the company, are very saddened by this decision, and very surprised. But the company has to do what it must to survive."

She said the FDA last week unexpectedly declined to approve Provenge, Dendreon's only product, without more data supporting the drug's effectiveness. Now, it will be released in 2009 at the earliest, she said.

"We hope these employees can stay in the area. Potentially, they could get rehired," though the layoffs are permanent, not temporary, she said.

If it comes to market, Provenge will be the only alternative to chemotherapy for men with advanced prostate cancer, according to Dendreon.

No further layoffs are planned, Greer said.

Dan Richman can be reached at 206-448-8032 or danrichman@seattlepi.c...


REAL ARTICLE:


Dendreon cuts 15 percent of staff

By Kirsten Orsini-Meinhard

Seattle Times business reporter

Seattle-based Dendreon on Thursday laid off 15 percent of its work force, or 40 people.

The layoffs, spread across all departments of the company, were effective immediately.

Dendreon is cutting employees to reduce its cash burn following the U.S. Food and Drug Administration's decision last week to delay the release of its prostate cancer drug, said spokeswoman Monique Greer.

The company spent $33 million in the first quarter of this year. Greer said she isn't sure how much money the layoffs will save.

Employees were given severance packages, although Dendreon would not disclose any details.

The company is looking at further ways to reduce spending, Greer said.

Kirsten Orsini-Meinhard: 206-464-2391 or kmeinhard@seattletimes...

Copyright © 2007 The Seattle Times Company

2007 May 17 06:29 PM

[Karuna Kana...:]

I spoke to Dan Richman earlier and he has already posted a retraction to his quoting Ms. Greer.

2007 May 17 10:17 PM

[Karuna Kana...:]

Well, here is Col. Jessup with the "answers"....

www.killerclips.com/cl...;qid=562

2007 May 17 10:50 PM

[dedichi:]

Very cool.

2007 May 17 10:54 PM