ROCHESTER, N.Y. (WROC) — New York Attorney General Letitia James filed a petition in court Tuesday to require Eastman Kodak Co. CEO Jim Continenza to publicly testify in an ongoing insider trading investigation.
Officials from the attorney general’s office say Continenza unlawfully traded stock while negotiating a loan with the Trump administration. Officials from the attorney general’s office say Kodak “doubled down on fraud and misled investors.”
“Corporate greed will never go unchecked in New York,” said Attorney General James in a Tuesday press release. “As millions of New Yorkers and Americans across this nation lost their jobs and were waiting for unemployment checks, Kodak’s CEO was using insider information to illegally trade company stock. Kodak even double downed on this fraud by relaying false information to investors before the company’s annual meeting that took place last month. Corporate executives don’t get to play by their own rules, which is why today’s action seeks to shine a light on Kodak and Mr. Continenza’s unlawful behavior and level the playing field. We are asking the court to order Mr. Continenza to testify in open court, so the facts can be exposed before the American people. My office will use every tool at its disposal to hold those who violated the law accountable.”
Last month, Kodak officials said A.G. James’ office threatened to file an insider trading lawsuit against the company and Continenza.
The claim stems from a June 2020 stock purchase by Continenza that company officials says was legally sound. According to a May 17, 2021 From 10-Q filing by the company with the United States Securities and Exchange Commission:
The June 23, 2020 stock purchase came one month before the Trump administration announced a signed letter of interest for a federal loan worth hundreds of millions of dollars to help shift the former film powerhouse to focus on pharmaceutical manufacturing.
“Continenza made the purchase while he was leading secret discussions with the Trump White House and the federal government for a $655 million loan to enable Kodak to repurpose legacy assets in Rochester to produce chemicals to address this need,” officials from the attorney general’s office said in a Tuesday press release. “Attorney General James’ petition also asks the court to order public testimony from Kodak’s general counsel, as well as for the company to produce related documents.”
According to the attorney general’s office:
- Continenza bought 46,737 shares of Kodak stock at a weighted average price of $2.22 per share.
- Continenza bought the stock just a week after Kodak had filed a confidential application for a $655 million loan from the federal government to develop a new business to produce chemicals to manufacture supplies for medicines for patients hospitalized with COVID-19.
- The new pharmaceutical project, alone, was expected to increase revenue at the company by more than $300 million annually by 2025.
- Kodak’s loan application followed extensive confidential dealings — led by Continenza personally — held directly with the White House and other federal officials.
- Just over a month after Continenza’s stock purchase, Kodak signed a public letter of interest with the federal government for the loan — which by then had grown to $765 million — causing Kodak stock to soar.
- The day after the news was announced, Kodak’s stock price reached a high of $60 per share — more than 27 times what Continenza had paid for the stock mere weeks earlier.
Attorney General James filed Tuesday’s petition in New York County State Supreme Court under the Martin Act, which authorizes the attorney general “to take public, judicially-supervised testimony in conducting investigations into fraudulent securities practices when, as here, it has determined to commence an action.”
In December 2020, a government watchdog agency said it found no wrongdoings in the stock purchasing process. The report stated that the investigator general of the U.S. International Development Finance Corporation didn’t find evidence of conflicts in the plan or any misconduct from DFC officials.
Before the watchdog agency’s report, Kodak conducted an internal review of the activity by the company’s CEO and found no wrongdoing as well.
Kodak officials released the following statement Tuesday:
“This morning the New York Attorney General filed an application in New York state court seeking investigative testimony and documents from Kodak. Prior to this filing, the Company repeatedly offered to make witnesses available and the Attorney General repeatedly declined. It is telling that she has now chosen to publicly seek this order asking for the very testimony in which she previously had no interest.
Mr. Continenza was not in possession of material non-public information and, contrary to the Attorney General’s allegations, his small stock purchase was pre-approved by Kodak’s General Counsel during an open trading window in accordance with Kodak’s insider trading policy and was subsequently found to be compliant by outside counsel in an independent investigation. Importantly, Mr. Continenza has purchased Kodak stock in virtually every open window period – and has never sold a single share.
In addition to being wrong on the facts, the Attorney General’s novel and highly problematic legal theory that seeks to impose liability in the absence of intent would have a chilling effect on directors and executives of every public company, who could never invest in their own companies without fear of having good-faith decisions, pre-approved by counsel, second-guessed by regulators and charged as insider trading.
We are confident that the facts and the law are on our side and are prepared to present our case in court if there becomes a need to do so.”