On August 3, 2011, Dendreon shocked the biotech world by posting weak sales and forecasts for its cancer vaccine Provenge. The numbers blindsided investors, triggering a 64% collapse in Dendreon's share price and spreading panic through the biotech market. But, if U.S. law enforcement has it right, the news came as no surprise to one trader: Vitaly Korchevsky.Vitaly Korchevsky
Authorities in the U.S. have accused Korchevsky of making $17 million through illegal trading, $2.3 million of which he reportedly made when the implosion of Dendreon got underway in August 2011. The Dendreon deal is outlined as an example of how the trading scheme worked. At 3:34 p.m. on August 3, Dendreon uploaded its second-quarter results to PR Newswire. Less than 30 minutes later at 4:01 p.m., just after the stock market closed, the release went public, giving the world its first look at the figures that marked the beginning of the end for Dendreon.
In that 27-minute window between the results being uploaded and published, U.S. authorities claim Korchevsky bought 1,100 put options of Dendreon, which gave him the option to sell the stock at a pre-agreed price. As the price was set while Dendreon was still one of biotech's rising stars, the deal would allow Korchevsky to profit when he came to sell the options when trading resumed the next day. In an indictment against Korchevsky filed with the U.S. Attorney's Office for the Eastern District of New York, authorities claim this sale netted the trader $2.3 million.
Authorities are portraying the Dendreon trade as one of many made on the basis of yet-to-be-posted press releases stolen from newswires by hackers. The Federal Bureau of Investigation (FBI) claims the hackers pinched 150,000 releases from Marketwired, PR Newswire and Business Wire. Traders, including Korchevsky, then allegedly used this stolen insider information to make $30 million. The Securities and Exchange Commission (SEC) outlines an even bigger scam in its parallel litigation, in which it charges 32 defendants with conspiring to make $100 million by hacking newswires.
The list of companies reportedly targeted by the hackers also includes the CRO Parexel ($PRXL), medtech player Edwards Lifesciences ($EW) and molecular diagnostic developer Cepheid ($CPHD). The SEC cited trades in Edwards Lifesciences as an example of the scheme in its litigation. On April 23 2013, Edwards Lifesciences uploaded first-quarter results in which it lowered its guidance to a wire service. Over the next few hours, more than 10 of the defendants allegedly shorted Edwards Lifesciences, netting them more than $4 million when the stock subsequently dropped 20%.
News of the allegations comes less than a year after consultancy FireEye released a report on a financially-motivated hacking ring dubbed Fin4. The operating model of Fin4 differs from how the hacking ring charged this week allegedly worked--notably because the former targets company emails instead of newswires--but the end goal is the same.