Tag: insider trading

State AG wants Kodak boss to testify about stock buy

New York state Attorney General Letitia James on Tuesday petitioned the court to force Eastman Kodak Co. CEO Jim Continenza to publicly testify about his stock purchase last year ahead of the federal government’s announcement that Kodak was in line to receive a $655 million loan to build its chemical business.

According to James, “Continenza made the purchase while he was leading secret discussions with the Trump White House and the federal government” for the loan that would enable Kodak to repurpose legacy assets here to produce drugs necessary to fight the pandemic. Continenza had purchased nearly 47,000 shares ahead of the loan announcement.

“Corporate greed will never go unchecked in New York,” James said in a statement on June 1. “As millions of New Yorkers and Americans across this nation lost their jobs and were waiting for unemployment checks, Kodak’s CEO was using insider information to illegally trade company stock. Kodak even doubled down on this fraud by relaying false information to investors before the company’s annual meeting that took place last month.

New York State Attorney General Letitia James
New York State Attorney General Letitia James

“Corporate executives don’t get to play by their own rules, which is why today’s action seeks to shine a light on Kodak and Mr. Continenza’s unlawful behavior and level the playing field,” James added. “We are asking the court to order Mr. Continenza to testify in open court, so the facts can be exposed before the American people. My office will use every tool at its disposal to hold those who violated the law accountable.”

At issue is Continenza’s purchase of 46,737 shares of Kodak stock at a weighted average price of $2.22 per share made on June 23, 2020. The stock purchase was made one week after the company filed a confidential application for the $655 million loan from the federal government to develop a new business that would produce chemicals necessary for patients hospitalized with COVID-19.

The new pharmaceutical project, also billed as a way to bring generic drug production back to the U.S., was expected to increase revenues at the company by more than $300 million annually by 2025.

Kodak officials responded to James’ petition after the bell on Tuesday, stating that Continenza was not in possession of material non-public information and, “contrary to the Attorney General’s allegations, his small stock purchase was pre-approved by Kodak’s General Counsel during an open trading window in accordance with Kodak’s insider trading policy and was subsequently found to be compliant by outside counsel in an independent investigation.” Continenza has reportedly purchased Kodak stock in nearly every open window period and has never sold any of his shares.

“This morning the New York Attorney General filed an application in New York state court seeking investigative testimony and documents from Kodak. Prior to this filing, the company repeatedly offered to make witnesses available and the Attorney General repeatedly declined,” Kodak officials said. “It is telling that she has now chosen to publicly seek this order asking for the very testimony in which she previously had no interest.”

According to the petition, “Kodak’s loan application followed extensive confidential dealings — led by Continenza personally — held directly with the White House and other federal officials.” The petition notes that Kodak gave the pharmaceuticals project a code name, “Project Tiger,” to maintain confidentiality.

Eastman Kodak Co. Executive Chairman Jim Continenza
Eastman Kodak Co. Executive Chairman Jim Continenza

On June 18, 2020, Kodak sent Project Tiger team members, including Kodak executives, an email linking to an internal memo. The memo warned that it was illegal to trade Kodak stock while in possession of material, non-public information and reminded the recipients to “pre-clear any transaction with [Kodak’s General Counsel] prior to trading,” according to the petition.

The memo stated: Kodak is a publicly traded company. It is illegal to trade in the securities of a publicly-traded company while you are in possession of material information regarding Kodak that is not generally available to the public. . . . The penalties for such illegal activity are severe and may involve fines and/or incarceration. The information you receive in the course of Kodak’s consideration of the Project may from time to time constitute such material non-public information. If you decide to trade in Kodak securities while the project is on-going, you must pre-clear any transaction with [Kodak’s General Counsel] prior to trading.

A little more than a month after Continenza’s stock purchase, Kodak signed a public letter of interest with the federal government for the loan — which had grown to $765 million — causing Kodak stock to soar. The day after the news was announced Kodak’s stock price reached a high of $60 per share, more than 27 times what Continenza had paid for the stock weeks earlier.

James’ petition also informs the court about alleged false statements Kodak made to investors about the circumstances of Continenza’s insider trading. Specifically, on May 17, 2021 — in two separate public filings with the Securities and Exchange Commission — Kodak disclosed that it anticipated being sued by the Office of the Attorney General (OAG) because of Continenza’s trading.

According to the petition, Kodak falsely stated in the disclosures that Continenza’s June 23, 2020, trading was “in compliance with the company’s insider trading policy, including pre-approval by its general counsel.” James alleges that Kodak’s insider trading policy requires pre-clearance to be sought by email at least one day prior to the trading and for the requester to receive a response approving the trading — neither of which James said occurred.

“These false and misleading disclosures occurred just two days before Kodak’s annual meeting during which shareholders voted on retaining Continenza as executive chairman of the company and on endorsing his compensation package,” the attorney general contends.

The U.S. International Development Finance Corp. scrapped the loan in August, as news of an SEC investigation into potential wrongdoing broke. An independent firm hired by Kodak to investigate the claims found that no laws were broken by the company ahead of the loan announcement.

“In addition to being wrong on the facts, the attorney general’s novel and highly problematic legal theory that seeks to impose liability in the absence of intent would have a chilling effect on directors and executives of every public company, who could never invest in their own companies without fear of having good-faith decisions, pre-approved by counsel, second-guessed by regulators and charged as insider trading,” Kodak officials said in their statement Tuesday. “We are confident that the facts and the law are on our side and are prepared to present our case in court if there becomes a need to do so.”

Shares of company stock (NYSE: KODK) closed Tuesday at $7.51 and were $7.55 in pre-market trading Wednesday.

[email protected] / 585-653-4021
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After investigation, legal experts conclude Kodak, executives did not violate any laws

An independent legal review of Eastman Kodak Co.’s actions during and ahead of a July announcement that the Rochester manufacturer was in line to receive a massive loan to produce pharmaceuticals has concluded that the company and its executives broke no laws.

As a result, Kodak shares (NYSE: KODK) were up more than 40 percent midday Wednesday at $8.80.

The review, conducted by Akin Gump Strauss Hauer & Feld LLP and released on Tuesday, concluded that Kodak and its officers, directors and senior management “did not violate the securities regulations or other relevant laws, engage in a breach of fiduciary duty or violate any of Kodak’s internal policies and procedures.”

Akin Gump was retained by a special committee formed by Kodak’s board of directors to look into allegations of impropriety surrounding the July 28 signing of a letter of interest between the U.S. International Development Finance Corp. and Kodak that would result in a $765 million loan.

The potential windfall would allow Kodak to reinvent itself with a new division, Kodak Pharmaceuticals, that would manufacture components of generic drugs and enabling the U.S. to rely less on China for its pharmaceuticals.

The July 28 letter of interest noted that it was not a done deal and that the loan could be any dollar amount up to $765 million. Both Kodak and the DFC said at the time that they could continue due diligence.

Eastman Kodak Co. Executive Chairman Jim Continenza
Eastman Kodak Co. Executive Chairman Jim Continenza

But within days of the announcement, the U.S. Securities and Exchange Commission said it would investigate the transaction. Kodak Chairman and CEO Jim Continenza had been issued 1.75 million stock options by the board the day before the loan announcement, triggering an outcry from analysts and investors. SEC filings also showed that Continenza purchased 46,700 additional shares of Kodak stock, while board member Philippe Katz purchased 5,000 shares on the same day. Additionally, board member George Karfunkel the day after the July 28 announcement had gifted a large number of shares to a charity.

Each of those actions raised eyebrows and suspicion.

On Aug. 7, the DFC suspended the loan until an investigation could be completed. Kodak share price has ranged from $2.62 on the day before the official announcement to a one-time high of $60, with a July 29 closing price of $33.20. But in recent weeks, shares had languished at around $6 while the public awaited results from several investigations.

Specifically, Akin Gump was retained to investigate:

• Whether Katz or Continenza engaged in insider trading, violated Kodak’s internal policies and procedures or otherwise acted improperly in purchasing Kodak shares in June 2020.
• Whether Kodak’s award of stock options to Continenza and other members of Kodak’s senior management team on July 27, 2020, the day prior to the DFC announcement, violated Kodak’s internal policies and procedures or the federal securities laws or constituted a breach of fiduciary duty under applicable state law.
• Whether board member Karfunkel violated the federal securities laws or Kodak’s internal policies and procedures by donating 3 million Kodak shares to an affiliated charity the day after the DFC announcement, while Kodak’s trading window remained closed.
• Whether Moses Marx, the father-in-law of board member Katz, or Southeastern Asset
Management, a large Kodak investor that had nominated two of Kodak’s board members, sold shares of Kodak after the DFC Announcement while in possession of material nonpublic information obtained from any of Kodak’s officers, directors or employees.
• Whether Kodak was responsible for the early release of information related to the LOI on July 27, 2020, the day before the DFC Announcement, and, if so, whether that release violated Regulation Fair Disclosure, promulgated by the SEC.

The Akin Gump investigation revealed that both Katz and Continenza sought and obtained preclearance to trade from Kodak’s general counsel, in compliance with the company’s insider trading policies.

Additionally, the July 27, 2020 options grants complied with the terms of Kodak’s
Executive Compensation Plan and were approved by a group of “disinterested” directors acting in their capacity as members of Kodak’s Compensation, Nominating and Governance Committee. The grants — and in particular the grant to Continenza — had been discussed with the board well in advance of the start of the DFC loan application process and were awarded for legitimate business purposes unrelated to the DFC announcement, according to the investigation.

The investigation also found that Karfunkel’s gift the day after the announcement was a bona fide gift and therefore did not constitute a sale of securities for insider trading purposes.

As a result of Akin Gump’s findings, Kodak’s Special Committee has recommended that the company adopt corporate governance and procedural changes with respect to its executive compensation practices, insider trading policies and procedures regarding the disclosure of information about the company to the public.

“The board and I are grateful for the diligence and care that was taken by the Special Committee and by its counsel to perform such a thorough independent review. Kodak is committed to the highest levels of governance and transparency, and it is clear from the review’s findings that we need to take action to strengthen our practices, policies and procedures,” Continenza said in a statement late Tuesday. “Expeditiously implementing these recommended measures will be critical as we continue to execute on our long-term strategy and transform our business for the future.”

[email protected] / 585-653-4021
Follow Velvet Spicer on Twitter: @Velvet_Spicer