In a hard hitting article, the Washington Post has called for an investigation into potential stock manipulation by short sellers of NWBO and other emerging biotechnology companies. The article was written by Steven Pearlstein, a 2008 Pulitzer prize winner. The Post suggests that there may be a wide spread criminal conspiracy that has victimized many small biotechnology companies and their investors. The Post also focuses on the prominent role of Adam Feuerstein in this situation. I have written a detailed analysis that elaborates on the Post article and provides further background information that can be seen at this link.

Small biotechnology companies and investors have been clamoring for years that short sellers are manipulating the prices of emerging biotechnology stocks. This has largely fallen on deaf ears as the SEC has taken no action. However, it appears that the heat has now been turned up. The Washington Post is one of the most prominent newspapers in America and highly influential in Washington. Its most famous investigational reporting piece was about Watergate and it carries great prestige. Securities regulators, politicians and law enforcement agencies are likely to be prompted by this article. It could also trigger wide spread media investigations.

If hedge funds are indeed collaborating in a stock manipulation scheme, they are now faced with the probability of possible SEC and Congressional investigations accompanied by an FBI probe and media digging. For the first time, they could be facing investigations from institutions with subpoena powers. If there is coordinated trading and naked shorting and fomenting by friendly bloggers as has been alleged, it will be discovered. If the Post is correct, we may be in the early days in an intensive Watergate like investigation that could expose a criminal enterprise of vast proportions.

The tag line for this investigation could very well be that a band of rapacious hedge funds are manipulating the prices of small companies trying to develop treatments for cancer, swindling small investors out of hundreds of millions of dollars and blocking treatment of patients from potential cancer drug breakthroughs. This is a compelling story for any politician or regulator and could be especially the case for politicians with enmity to Wall Street such as President Obama and Senator Elizabeth Warren, not to mention Attorney General Eric Holder.

So what are the stock market implications? If indeed there is ultimately shown to be a criminal conspiracy, how bold will the hedge funds be in the interim. Nothing in the past has had any effect on their behavior and perhaps this will also be the case with the Washington Post article. Moreover, there is no objective evidence that I am aware of that comes together to prove a criminal plot. The evidence, however powerful, is circumstantial. If the hedge funds are confident that they are acting legally, nothing will change in their conduct.

However, if there are guilty consciences, we may see a sharp reduction in their shorting activity and possibly some could begin to unwind their short positions. This could create an enormous short squeeze in the case of Northwest Biotherapeutics where there are 8 million legitimate shorts and an estimated 4 million or more naked shorts. The effective public float of the Company after subtracting out management and closely held shares could be about 20 million shares. If the shorts begin to panic, we could see a short squeeze of enormous proportions.

You can follow comments on the Washington Post article on this link. So far, they have been overwhelmingly supportive and appreciative of the Post article and there is an overwhelming consensus that there appears to be manipulative stock trading practices on the part of hedge funds.

You can follow comments on Mr. Pearlstein's article at this link. I have also written an extensive summary on the Washington Post article. The Washington Post article included the following chart which shows that the shorting activity against tiny Northwest Biotherapeutics bears a striking correlation with Feuerstein's blogs. The Washington Post notes that his articles seemed to have been timed to blunt the effect of positive developments and drive down the stock price.