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.
“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.
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.
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