(Reuters) – New York prosecutors are preparing an insider trading lawsuit against Eastman Kodak Co. and its top executive, focusing on stock purchases that preceded a failed deal with the Trump administration to fund a drug company during the COVID-19 pandemic, according to the company and people familiar with the matter.
The emerging civil case concerns CEO Jim Continenza's June 23, 2020, purchase of nearly 47,000 Kodak shares, Kodak said in a quarterly Securities and Exchange report. Application from the Commission on Monday. Continenza, the company's chairman beginning in September 2013 and chief executive officer since February 2019, took on the additional role of CEO in July 2020.
The deal came weeks before the Trump administration unveiled a preliminary agreement to lend the company $ 765 million to support production of pharmaceutical components to combat the pandemic. Kodak's stock experienced a roller coaster after the announcement in late July, rising more than 1
A spokeswoman for New York's Attorney General Letitia James did not immediately respond to a request for comment.
Investigators are seizing Mr. Continenza's alleged knowledge of material non-public information regarding government loan negotiations when he bought Kodak shares, according to the company and people familiar with the matter.
In a statement to Reuters, Kodak said Continenza did not have significant non-public information when he bought his shares and "did not engage in insider trading." Kodak refused to do Mr. Continenza available for comment.
Kodak pointed to an investigation carried out by its external law firm, which found that Continenza's purchase was approved by the company's attorney general. The purchases, at a weighted average price of $ 2.22 per share, complied with Kodak's insider trading policy and did not violate securities regulations or other relevant laws, the review found.
Mr. Continenza has also regularly bought shares during internally approved time windows, which included trading in June 2020, and has never sold its shares, the company says.
The stock is floating
Kodak, a former blue pioneer in chip photography that failed to keep pace with the digital revolution, emerged from bankruptcy proceedings in 2013 and has faced financial challenges.
The shares closed about $ 2.62 on July 27, the day before the government announced it had signed a letter of interest. to provide the loan. On July 29, they had risen as high as $ 60 before closing at $ 33.20. Investigations by congressional committees and securities regulators followed.
The company's stocks tumbled over the next few days, and the Trump administration halted Kodak's loan application process in the middle of the frenzy. Kodak has since said it does not expect the loan.
The investigation carried out by the external law firm, Akin Gump Strauss Hauer & Feld LLP, found that Continenza considered Kodak's chances of obtaining the loan uncertain when buying shares.  Kodak's General Counsel, Roger Byrd, shared that view and considered that the market's reaction to the company taking on such large debts was difficult to predict, leading him to the conclusion that Mr. Continenza did not have material non-public information, according to the Akin Gump review. was found. Kodak refused to make Byrd available for comment.
Investigators have built up their case according to the Martin Act, says Kodak's archive. The State Act gives the Attorney General the power to investigate and bring cases of financial fraud without proving intent or knowledge of offenses.
Officials at the New York Public Prosecutor's Office have emphasized this legal space in their investigation, the company said. Kodak regards legal precedents as a claim for breach of the trustee's duty to prove insider trading, which cannot exist without intent or knowledge of offenses on the part of the trader.
In its statement, Kodak called the Attorney General's approach a "new application" of insider dealing legislation that seeks to impose liability in the absence of evidence of intent. The Rochester, New York-based firm said the planned lawsuit would discourage executives from investing in good faith with other shareholders for fear that transactions approved by in-house attorneys could be considered illegal.
In April 2020, Kodak held an initial discussion with White House officials, including Trade Adviser Peter Navarro, about using its long-standing and lesser-known chemical business to produce pharmaceutical ingredients that can be sold to pharmaceutical manufacturers.
In May 2020, then-President Donald Trump signed an executive order approving the US International Development Finance Corp. under the Defense Production Act to lend money supporting domestic production and supply chains to combat the pandemic.
Kodak was soon directed to DFC, an agency that usually provides money to developing countries. But the review of Akin Gump showed that Kodak's executives, including Mr. Continenza, became pessimistic about getting funding when a follow-up conversation with Mr. Navarro was discontinued and a smaller senior DFC official became Kodak's main contact.
Nevertheless, after some caution, the DFC decided to enter into a non-binding letter of interest with the company regarding the loan which it announced on the morning of 28 July. Kodak's stock rose. President Trump called the preliminary deal a "breakthrough" that night, and Kodak's shares rose sharply the next day.
DFC stopped the loan application while reviewing the trade around the announcement.