Kodak Doubled Down on Fraud and Misled Investors
New York Attorney General Letitia James, today, announced a new action taken in her investigation of insider trading by the chief executive officer (CEO) of the Eastman Kodak Company (Kodak). Attorney General James filed a petition with the New York County State Supreme Court to have Kodak CEO Jim Continenza publicly testify about his purchase of more than 46,000 shares of Kodak stock early last summer and Kodak’s subsequent false statements about that trading to investors last month. Continenza’s stock purchase occurred in the midst of the coronavirus disease 2019 (COVID-19) public health crisis last June, as the pandemic exposed domestic shortages in the chemical building blocks used to make medicines. Continenza made the purchase while he was leading secret discussions with the Trump White House and the federal government for a $655 million loan to enable Kodak to repurpose legacy assets in Rochester to produce chemicals to address this need. Attorney General James’ petition also asks the court to order public testimony from Kodak’s general counsel, as well as for the company to produce related documents.
“Corporate greed will never go unchecked in New York,” said Attorney General James. “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. Kodak even double downed on this fraud by relaying false information to investors before the company’s annual meeting that took place last month. Corporate executives don’t get to play by their own rules, which is why today’s action seeks to shine a light on Kodak and Mr. Continenza’s unlawful behavior and level the playing field. We are asking the court to order Mr. Continenza to testify in open court, so the facts can be exposed before the American people. My office will use every tool at its disposal to hold those who violated the law accountable.”
Attorney General James’ petition shows that, on June 23, 2020, Continenza bought 46,737 shares of Kodak stock at a weighted average price of $2.22 per share. Continenza bought the stock just a week after Kodak had filed a confidential application for a $655 million loan from the federal government to develop a new business to produce chemicals to manufacture supplies for medicines for patients hospitalized with COVID-19. The new pharmaceutical project, alone, was expected to increase revenue at the company by more than $300 million annually by 2025.
Kodak’s loan application followed extensive confidential dealings — led by Continenza personally — held directly with the White House and other federal officials.
Just over a month after Continenza’s stock purchase, Kodak signed a public letter of interest with the federal government for the loan — which by then had grown to $765 million — causing Kodak stock to soar. The day after the news was announced, Kodak’s stock price reached a high of $60 per share — more than 27 times what Continenza had paid for the stock mere weeks earlier.
Attorney General James’ petition also informs the court about false statements Kodak made to investors about the circumstances of Continenza’s insider trading. Specifically, on May 17, 2021 — in two separate public filings with the Securities and Exchange Commission — Kodak disclosed that it anticipated being sued by the Office of the Attorney General (OAG) because of Continenza’s illegal trading. Kodak falsely 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.” But, in truth, 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.
These false and misleading disclosures occurred just two days before Kodak’s annual meeting during which shareholders voted on retaining Continenza as executive chairman of the company and on endorsing his compensation package
Attorney General James filed today’s petition under Section 354 of the Martin Act — New York’s powerful securities law. Section 354 specifically authorizes Attorney General James to take public, judicially-supervised testimony in conducting investigations into fraudulent securities practices when, as here, it has determined to commence an action.
In the past, Attorney General James has used Section 354 of the Martin Act to shine a light on and halt the illegal behavior of other companies; most notably iFinex Inc. and Tether Limited. In April 2019, Attorney General James obtained a court order enjoining iFinex — operator of the Bitfinex virtual asset trading platform — and Tether Limited — issuer of the “tether” virtual currency — and their related entities from further violations of New York law in connection with activities that defrauded New York investors that trade in virtual or “crypto” currency. Earlier this year, Attorney General James was able to get Bitfinex and Tether to end all trading activity with New Yorkers, pay $18.5 million in penalties, and take a number of steps to increase transparency — all as a result of the original 354 action she brought in 2019.
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