SEC Probing Loan Disclosure, Unusual Stock Trading Activity At Eastman Kodak

The Securities and Exchange Commission has launched a probe of circumstances surrounding Eastman Kodak (KODK) and a $765 million government loan it received last week to make pharmaceutical ingredients at its U.S. facilities.

After announcing the loan last week, Kodak shares surged to an intraday high of $60 on Wednesday before plunging back to just under $15 at Monday’s close. (As of 1:30 p.m. EDT on Tuesday, shares traded at $14).

During that period of volatility, trading in Kodak shares soared – on Monday and Tuesday last week, Kodak share trading volume exceeded 275 million. On the Monday before trading volume was only about 1.64 million. However, that 1.64 million figure was still a massive spike from the 74,900 share volume from the previous Friday.

Sen. Elizabeth Warren (D-Mass.) also asked the SEC if the heavy trading volume of Kodak shares – including purchases by executives before the loan announcement – amounted to insider trading.

In a letter to SEC Chairman Jay Clayton, Warren pointed out “several instances of unusual trading activity” involving Kodak shares one day before the loan was made public.

“Over the last year, the average trading volume of Kodak’s stock has been 236,479 shares per day. On Monday, July 27, however, a day before the public announcement, 1,645,719 shares, almost eight times the daily average, were traded,” Warren wrote.

The Wall Street Journal reported that the price surge to $60 may have provided a bonanza for some Kodak executives who owned stock-option grants – some of which were granted last Monday, one day before the government loan became public knowledge.

Between last Tuesday and Wednesday, Kodak’s closing share price more than quadrupled from just under $8 to more than $33.

The SEC will look at how Kodak controlled the disclosure of the government loan, according to reports.

The Journal reported last week that Kodak actually shared information about the loan with some local media outlets in its Rochester, N.Y., home just before the official public announcement. Kodak then asked the outlets to delete any references to the loan.

Warren conceded that while the premature disclosure might have been an honest oversight, as a publicly traded company, Kodak is required by federal securities law to fully disclose all matters that could influence its stock price, such as the government loan as soon as local media reported on it.

“Kodak, however, made no such full disclosure the day that the information was inadvertently disclosed,” Warren wrote.

Warren also asked Clayton to look into stock buying by some Kodak executives in late June – specifically the purchases of about 46,700 shares by Kodak Executive Chairman James Continenza and 5,000 shares by board member Philippe Katz on June 23.

“The purchase of stock by Mr. Continenza and Mr. Katz while the company was involved in secret negotiations with the government over a lucrative contract raises questions about whether these executives potentially made investment decisions based on material, non-public information derived from their positions,” Warren wrote.

The Hill reported that a Kodak spokesman said in response that Continenza "has regularly purchased Kodak shares with his own money since joining the company in 2013 … because he strongly believes in the long-term success of the company.”

“In fact, Mr. Continenza has invested more capital in Kodak than he has earned during his tenure,” the spokesman added. “Mr. Continenza has purchased shares at nearly every available window in which he is eligible since he joined the company. He has not sold a single share of stock during his time at Kodak.”