Eastman Kodak stock has tanked after the U.S. International Development Finance Corporation (or DFC) announced that it would delay a $765 million loan agreement to help the company transition into producing pharmaceutical reagents in the United States. Lawmakers asked the SEC to investigate after it emerged that executives had purchased shares in the company around the time it learned that the loan had been approved.
How is Kodak stock doing in pre-market trading?
Kodak stock was down nearly 45 percent in pre-market trading today. After the loan was announced publicly, Kodak stock surged from around $8 to $33. The company was valued at nearly $1.5 billion following the surge, after having struggled to stay above $200 million for the last two years.
Why did the U.S. pause the loan?
The U.S. government had approved a $765 million loan to Kodak to help the company transition factories in the U.S. away from producing chemicals for photography, and toward reagents for medical goods. The White House claimed that the move would reduce reliance on other nations, especially China, for the reagents that will be needed to produce a coronavirus vaccine in mass quantities.
"Kodak is proud to be a part of strengthening America’s self-sufficiency in producing the key pharmaceutical ingredients we need to keep our citizens safe," executive chairman Jim Continenza said. "If we have learned anything from the global pandemic, it is that Americans are dangerously dependent on foreign supply chains for their essential medicines," White House spokesperson Peter Navarro added.
Investors had hoped that the transition would help Kodak relive its glory days. The company once employed more than 145,000 people around the world, but that number has fallen to around 5,000 after the company continued to focus on film rather than digital photography.
And while the stock soared after news of the loan became public in late July, it tanked while markets were closed over the weekend. The DFC announced late Friday that it would "not proceed any further" unless allegations of insider trading were "cleared."
What is the SEC investigating?
Lawmakers, including Senator Elizabeth Warren, have asked the SEC to investigate the securities transactions made by the company and its executives around the time they learned of the loan. "This is just the latest example of unusual trading activity involving a major Trump administration decision," Warren wrote. "With regard to Kodak, analysts have observed an unusual trading pattern in company stock that began prior to the public announcement."
In the letter, Warren noted that 236,479 shares of Kodak are traded on an average day. On July 27, however, a day before the loan was publicly announced, 1,645,719 shares, almost eight times the daily average, were traded. When the deal was publicly announced the following day, Kodak stock surged by over 500 percent at one point.
The Wall Street Journal explains that some of this trading may have been the result of news reports in Rochester, N.Y., where Kodak is headquartered. These publications shared information on the loan a day early because Kodak had failed to indicate that the information was not yet for public release. Warren has accused Kodak of violating SEC rules by failing to make the information public after it was published by these news sources. The senator states that, instead, “the company asked the reporters to remove the information after they posted it.”
Senior employees at Kodak are also accused of purchasing thousands of shares while the loan was still being negotiated. Warren states that "the Kodak chairman and other members of Kodak’s board of directors appear to have purchased substantial amounts of company stock last month, ahead of the public announcement." According to CNBC, CEO James Continenza purchased roughly 46,700 additional shares on June 23. On the same date, board member Philippe Katz purchased 5,000 shares.