The FINANCIAL — Concerns were raised about Eastman Kodak’s corporate governance but no evidence was found 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. A company seeking to address the firestorm of allegations surrounding a Trump administration loan said it mishandled the process of awarding stock option grants to its chief executive officer before the announcement.
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 the scrutiny of the stock deals from members of Congress and others. 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, according to The Financial Times.
Securities transactions made by Continenza around the time the photography equipment maker learned it could receive a $765 million government loan did not violate internal policies, a law firm hired by the company’s board said on Tuesday. An investigation found “gaps” in Kodak’s insider trading processes where certain individuals were not included on insider lists, Akin Gump Strauss Hauer & Feld LLP said in a report to a special committee of independent directors at Kodak’s board. Kodak’s General Counsel was found to be overwhelmed and running on outdated policies, resulting in board members not being fully advised on relevant internal policies regarding options grants, the law firm said. The U.S. government put on hold its loan to Kodak to produce pharmaceutical ingredients at its U.S. factories, over concerns about the company granting of options for 1.75 million shares to Continenza and other securities transactions made by executives, as reported by Fox Business.
Continenza said on Tuesday: “The Board and I are grateful for the diligence and care that was taken by the Special Committee and by its counsel to perform such a thorough independent review. 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. 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.”
Shares of Kodak surged more than 50% in premarket trading following the report. Kodak’s General Counsel was found to be overwhelmed and running on outdated policies, resulting in board members not being fully advised on relevant internal policies regarding options grants, the law firm said. U.S. lawmakers have cited “serious concerns” about the transactions and asked the Securities and Exchange Commission to investigate the circumstances surrounding the matter. Akin said Continenza and board member Philippe Katz obtained preclearance to trade from Kodak’s General Counsel, who had concluded it was appropriate as the company’s loan application process was at a “highly uncertain” stage, CNBC wrote.
A conclusion was less definitive on whether the donation of shares by another director, George Karfunkel, to a religious charity violated federal securities law. The lawyers said the gift “did not appear” to be unlawful. In a footnote, the lawyers wrote that they “did not have access to the records of the charity and were unable to interview any of its officers or directors, with the exception of Karfunkel.” The lawyers said they relied on Karfunkel’s characterization of the donation, which appeared to be worth more than $100 million. Kodak said it will consider beefing up the company’s legal team, in addition to revising the grants and reassessing the boardroom makeup. “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 statement, according to Bloomberg.