Warren asks SEC to investigate Kodak stock buys for insider trading

Sen. Elizabeth Warren (D-Mass.) is asking the Securities and Exchange Commission (SEC) to investigate whether a flurry of trades and executive purchases of Eastman Kodak stock ahead of the announcement of a massive federal loan involved insider trading.

Warren, in a letter to SEC Chairman Jay Clayton released Tuesday, asked the stock market watchdog to probe “several instances of unusual trading activity” involving Kodak stock one day before the federal government announced it would lend $765 million to the company to produce pharmaceutical ingredients in the U.S.

The Wall Street Journal reported soon after the letter’s release that the SEC was probing Kodak’s rapid stock rise.

The U.S International Development Finance Corp. announced last Tuesday that it would lend Kodak $765 million to launch Kodak Pharmaceuticals. The loan was offered through the Defense Production Act (DPA), a 1950 law that gives the president the authority to order private-sector companies to produce goods and equipment crucial to national defense.

Kodak’s DPA loan was a major financial turning point for the beleaguered but iconic camera and film manufacturer, drastically increasing the price of its stock from roughly $2 per share to as high as $33. But the surge of Kodak’s stock price and the volume of shares traded the day before the announcement was made prompted scrutiny from marketwatchers and policymakers, including Warren.

“Over the last year, the average trading volume of Kodak’s stock has been 236,479 shares per day. On Monday, July 27, however, a day before the public announcement, 1,645,719 shares, almost eight times the daily average, were traded,” Warren wrote, citing a CNBC report.

As a publicly traded U.S. company, Kodak is required to closely guard and properly disclose information that will materially affect the price of its stock. The Wall Street Journal reported that Kodak shared news of the DPA loan with reporters in Rochester, N.Y., home of its headquarters, on Monday without specifying it could not be published until the following day when the loan was announced, and then asked reporters to delete their posts after realizing its mistake.

Warren said that while the early disclosure may have been a mistake, Kodak was still obligated by federal securities law to fully disclose the news of the loan once it was publicized by reporters. 

“Kodak, however, made no such full disclosure the day that the information was inadvertently disclosed,” Warren wrote.

Warren also pressed Clayton to investigate the June 23 purchases of roughly 46,700 shares of Kodak stock by Eastman Kodak Executive Chairman James Continenza and 5,000 shares by board member Philippe Katz.

“The purchase of stock by Mr. Continenza and Mr. Katz while the company was involved in secret negotiations with the government over a lucrative contract raises questions about whether these executives potentially made investment decisions based on material, non-public information derived from their positions,” Warren wrote.

A spokesperson for Kodak said in a statement that Continenza “has regularly purchased Kodak shares with his own money since joining the Company in 2013 … because he strongly believes in the long-term success of the Company.”

“In fact, Mr. Continenza has invested more capital in Kodak than he has earned during his tenure. Mr. Continenza has purchased shares at nearly every available window in which he is eligible since he joined the Company,” the spokesperson added. “He has not sold a single share of stock during his time at Kodak.”

Updated at 3:06 p.m.