An independent review has raised concerns about Eastman Kodak’s corporate governance but found no evidence of insider trading when its top executive and a board member bought shares before the stock surged on news of a possible $765m loan from the US government.
Jim Continenza, Kodak’s chairman and chief executive, and Philippe Katz, a board member, bought shares in June, and Mr Continenza was awarded stock options on July 27, the day before the company said it was nearing a deal with the government to become a manufacturer of generic drug ingredients.
That announcement briefly sent the stock soaring 15-fold, transforming the value of insiders’ holdings and drawing scrutiny of the stock deals from members of Congress and others. The US International Development Finance Corporation, which was negotiating the loan, said in August that it would not move ahead unless the allegations of wrongdoing were cleared.
Akin Gump, the law firm engaged by a special committee of Kodak’s board, found that Mr Continenza and Mr Katz had been cleared to trade in June by Kodak’s general counsel, who had concluded that their stock purchases would not flout insider trading laws because the loan application “was at a highly uncertain stage”.
Mr Continenza’s options grants had been discussed with Kodak’s board well before the loan discussions began, the report found, but the lawyers identified “several flaws” in the general counsel’s handling of the grants.
The report also found that a gift of 3m shares by George Karfunkel to a Jewish congregation he had founded raised “significant concerns from a corporate governance perspective” but did not violate federal securities laws or Kodak’s policies.
The shares were worth $99.6m at the close of trading on July 29, the day the gift was made. The law firm did not address the potential tax benefits to Mr Karfunkel.
In a statement, the special committee said it recommended that Kodak change its executive compensation practices and insider trading policies.
It also advised tightening procedures for disclosing information, after the report blamed a junior public relations employee for sending out information about the market-moving news to local news outlets a day before the announcement.
The company said it accepted the report’s findings and intended to implement the committee’s recommendations.
Kodak, whose shares have fallen from a $60 peak after the announcement of the loan discussions to $6.23 at Tuesday’s close, still faces other inquiries.
Elizabeth Warren, the Democratic senator, said this week that the inspector general for the International Development Finance Corp had agreed to review the Trump administration’s loan proposal, which she said came “through an opaque process and after an extensive and unprecedented lobbying effort”.
In a statement on Tuesday evening, Mr Continenza said Kodak was “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”.
Akin Gump said it reviewed more than 60,000 electronic communications and conducted 44 interviews over the six weeks it took to produce its 88-page review.