What did CEO Jim Continenza know, when did he know it and what did he do with that knowledge?

The last time Eastman Kodak needed a little spring in its stock, it looked to what was fashionable and the came up with a ridiculous plan to transform itself by getting into the cryptocurrency and blockchain business. It has done neither, but it worked—for a time, anyway—more than doubling the price of Kodak shares.

Two years later, the effect of that ruse had more than worn off, and Kodak shares were trading for little more than $2—a third lower than before the KodakCoin announcement. By then, Kodak had a new CEO and the world had a new obsession that was making companies and corporate insiders very rich: COVID-19. So that new CEO, Jim Continenza, decided another transformation was in order, one as fanciful as the last. Kodak would become a pharmaceutical company. Sure, the company has no more business doing that than it did moving into matters crypto, but that didn’t stop an administration stocked with as many fabulists and fantastical thinkers from offering it $765 million to start doing something it had never done before: make drugs.

This stock price-pumping plan worked even better than the last one: Kodak shares quadrupled, and then quadrupled again, and then almost double from there. What had traded for $2.10 on July 24 touched $60 in intraday trading on July 29, a day after that federal loan was announced.

Unfortunately for Kodak and Continenza, two other things also happened: First, during those two months of negotiations with the Trump administration, Continenza assiduously bought up Kodak shares, while he and other Kodak insiders were showered with stock options granted the day before the loan’s announcement. Second, Elizabeth Warren noticed.

In a letter dated Tuesday, Warren asked the Securities and Exchange Commission to examine trading prior to Kodak’s July 28 announcement. On July 27, volume in the company’s shares surged and the stock rose about 20%. The stock had jumped more than 500% by the end of last week.

“This is just the latest example of unusual trading activity involving a major Trump administration decision,” Warren, a Massachusetts Democrat, wrote…. In her letter, Warren also flagged a June 23 share purchase by Kodak Executive Chairman James Continenza, saying the transaction raises questions about whether he took advantage of “secret negotiations with the government over a lucrative contract” to trade on non-public information.

Kodak says it’s all a big misunderstanding, stemming from some overeager Kodak press office people forgetting to type “EMBARGOED” or “BACKGROUND ONLY” on the top of the advisory they sent out proclaiming that the whole thing “could change the course of history for Rochester and the American people.” Still, given its own overeagerness of late and especial concern about matters coronavirus, Jay Clayton & co. are gonna take a look.

Among the areas being probed by regulators: how Kodak controlled disclosure of the loan, word of which began to emerge on July 27, causing Kodak’s stock price to rise 25% that day…. The SEC is also expected to examine the stock options granted to executives on July 27, the people said. The option grants instantly became profitable, at least on paper, after Kodak’s loan became public….

At recent prices, options on 1.75 million shares granted to Kodak Executive Chairman Jim Continenza the day before the announcement are worth about $16 million. A little more than a quarter of those options vested, or became fully exercisable, the day of the grant…. Kodak has said Mr. Continenza’s potential gains haven’t been realized and that the executive chairman, Kodak’s biggest individual shareholder, hasn’t ever sold shares of company stock and has no intention of doing so…. The company has said the July 27 option grant was intended to protect Mr. Continenza against dilution, which would lower the value of his and other outstanding equity holdings in the event that investors converted debt into stock. The company has said it gave him the options that day because it was the first meeting of the board’s compensation committee after the company received shareholder approval to use more shares for executive compensation.

Kodak Loan Disclosure and Stock Surge Under SEC Investigation [WSJ]
Elizabeth Warren Seeks SEC Insider Trading Probe After Kodak Shares Surge [Bloomberg]