Kodak CEO James Continenza’s stock purchase while confidentially negotiating a $655 million loan from the federal government faces heightened scrutiny. State Attorney General Letitia James has filed a petition with State Supreme Court in New York County to have Continenza publicly testify about that purchase.
The petition indicates that on June 23, 2020, Continenza bought 46,737 shares of Kodak stock at a weighted average price of $2.22 a share. He bought the stock just a week after Kodak had filed a confidential loan application with the federal government to develop a new business to produce chemicals needed to manufacture supplies for medicines for patients hospitalized with COVID-19.
Kodak Pharmaceuticals would repurpose the company’s facilities in St. Paul, Minn., to produce components for the pharmaceutical industry deemed essential by the U.S. Food and Drug Administration. Once operational, the business was expected to create 360 jobs and 1,200 indirect hires, mostly in Rochester, and boost revenue by more than $300 million annually by 2025.
“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,” James contends.
By July, the proposed federal loan—under the Trump administration—had grown to $765 million. A day before the formal announcement of the agreement, more than 1.6 million Kodak shares (NYSE: KODK) changed hands. After the deal was announced on July 28, Kodak’s share price rose as high as $60—more than 27 times what Continenza paid for the shares he acquired on June 23.
When the loan was put on hold after scrutiny of the authorization process and insider stock trades, Kodak’s share price plummeted. This afternoon, it was trading at less than $9 a share.
The attorney general’s statement on the petition also points to alleged “false statements” Kodak made to investors about the circumstances of Continenza’s insider trading. On May 17, 2021—in two separate public filings with the Securities and Exchange Commission—Kodak disclosed that it anticipated being sued by the attorney general’s office because of Continenza’s stock purchase.
Kodak 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.” The attorney general’s petition notes 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 occurred.
In a statement issued in response to James’ petition, Kodak said it had offered to make witnesses available to the attorney general, but her office declined.
“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,” Kodak said in its statement.
According to the company, 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 hired to conduct an internal review.
“Importantly, Mr. Continenza has purchased Kodak stock in virtually every open window period—and has never sold a single share,” the statement reads.
Akin Gump Strauss Hauer & Feld is the law firm retained by a special committee formed by Kodak’s board to conduct the internal investigation. Last September, Reuters reported that Akin Gump also was helping to defend Kodak against class action litigation that claims the company engaged in a fraudulent scheme to artificially inflate its stock price.
In December, a Trump administration watchdog agency concluded that no wrongdoing occurred in the federal loan process, the Wall Street Journal reported.
James’ petition was filed under Section 354 of the Martin Act, the state’s securities law. It gives the attorney general the authority to take public, judicially-supervised testimony in conducting investigations into fraudulent securities practices.
The state attorney general’s case is being handled by Senior Enforcement Counsel Mary Kay Dunning, Assistant Attorney General Jeffrey Novack, and Legal Assistant Pascual Noble—all of the Investor Protection Bureau.
Smriti Jacob is Rochester Beacon managing editor.