Kodak stock trading rose shortly before the $765 million loan for drug.
Sen. Elizabeth Warren on Tuesday asked the SEC to investigate possible insider trading related to Eastman Kodak that it would receive a $765 million government loan to begin producing the chemical ingredients needed to make pharmaceutical products.
The company's share price rose about 20 percent that day, July 27, and rose more than 200 percent the next day, July 28, when the loan was announced.
Warren also noted that shortly before the announcement, James Continenza , Kodak's executive chairman , bought about 46,700 shares. The transaction " while the company was engaged in secret negotiations with the government for a lucrative contract raises questions about whether these executives may have made investment decisions based on material, non-public information they learned because of their positions ," Warren said.
Continenza regularly bought Kodak shares since joining the company in 2013, and has not sold a single share, according to Kodak.
The Wall Street Journal reported on Tuesday that the SEC had launched an investigation into the circumstances surrounding the Kodak loan announcement.
The SEC refused to comment on Warren's letter and the WSJ publication.
Kodak said in a statement that it intends to fully cooperate with any investigations.
“I think Senator Warren is right to call for an investigation even though it’s not clear that there was a breach,” said John C. Coffee, a professor and security expert at Columbia Law School.
«We really want an investigation that tells us what happened. We need to examine the facts correctly.»
Reports that the news may have leaked early through local Rochester media could provide a logical explanation for the surge in trading on July 27, Coffee said, although that doesn't rule out the possibility that internal company whistleblowers may have leaked the information early through other means.
“Sometimes information leaks from multiple sources,” he said. And if the media were to break the news before Kodak’s intention, that would force the company to disclose the information before trading begins the next day, Coffee said.
The Wall Street Journal reported new information about the story, with confirmation from Kodak, in the early morning hours of July 28.
The company's internal communications team did not plan for the news to be released before the official announcement, said Arielle Patrick of Edelman, an outside communications firm the company hired after the loan announcement.
Kodak, known for cameras , has struggled to reinvent itself for years as customers moved to digital photography and then smartphone. After filing for bankruptcy in 2012, the company focused its business on selling printers and specialty films for motion picture and other industries.
In recent years, it has made chemicals known as key starting materials for some pharmaceutical companies on request. The company has a long history of producing chemicals, which it has used in film production.
Kodak said the loan from the US International Development Finance Corp.will help launch a new business unit, called Kodak Pharmaceuticals. The loan agreement has not been finalized, however.
“Kodak has more than 100 years of experience in chemicals,” the company said in a statement, adding that Kodak Pharmaceuticals “will produce critical pharmaceutical ingredients that have been identified as essential but have been in chronic national shortage.”
