Shares of Eastman Kodak (NYSE: KODK) are up two-thirds so far this week after a special committee set up by the company’s board found no lawbreaking in controversial stock trades made by top management in the leadup to announcing a $765 million federal government loan to support a shift to pharmaceutical manufacturing.
CEO Jim Continenza and board member Philippe Katz bought Kodak shares in June 2020, the month before the July 27 announcement of the U.S. International Development Finance Corp. However, they made sure to get preclearance from Kodak’s general counsel, according to to report, which the law firm Akin Gump Strauss Hauer & Feld produced for the board special committee after reviewing tens of thousands of documents including 60,000 electronic communications and interviewing 44 company personnel.
The company’s general counsel concluded in June that the DFC loan application process was at a highly uncertain stage and not material nonpublic information, according to the report, which the company released yesterday.
As for Kodak’s July 27 awarding of stock options to Continenza and other senior company managment, the report concluded: “While granting options to company management ahead of positive news can be controversial, it is not prohibited by SEC regulations and can only give rise to state law breach of fiduciary duty claims under certain circumstances not present here.”
Kodak had planned the loan announcement for July 28, but a news release announcing the planned signing ceremony was accidentally mislabeled for immediate release instead of an embargo date.
The special committee, in consultation with Akin Gump, has recommended that Kodak adopt corporate governance and procedural changes related to its executive compensation practices, insider trading policies, and public relations procedures.
“Kodak is committed to the highest levels of governance and transparency, and it is clear from the review’s findings that we need to take action to strengthen our practices, policies, and procedures.,” Continenza said in a news release. “Expeditiously implementing these recommended measures will be critical as we continue to execute on our long-term strategy and transform our business for the future.”
Even with the internal review complete, Kodak may not be out of the woods when it comes to questions about how its management handled the loan announcement. A spokesperson for Sen. Elizabeth Warren (D-Mass.) tells The Wall Street Journal that the newly named inspector general at the U.S. International Development Finance Corp. told the senator that his office plans to review the loan.
The loan is supposed to support the retooling of Kodak’s existing facilities in Rochester, N.Y., and St. Paul, Minn., incorporating continuous manufacturing and advanced technology so that a new Kodak Pharmaceuticals can produce critical pharma ingredients inside the U.S. — a major Trump administration goal.