Kodak Didn't Break Law When Loan Was Revealed, Panel Finds

Kodak Didn't Break Law When Loan Was Revealed, Panel Finds

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In late July, it was announced that Kodak was in line to receive a $765 million loan to help make drug ingredients for the fight against the coronavirus.


Mike Bradley/Bloomberg News

A special committee hired by

Eastman Kodak Co.

KODK -4.15%

’s board found several governance issues at the firm concerning the July announcement of a planned $765 million loan from the U.S. government, but said none of those issues violated the law.

The release of the review’s findings comes roughly a month after the special committee retained the law firm Akin Gump Strauss Hauer Feld LLP to conduct the internal review.

The hiring of Akin Gump followed a tumultuous period for Kodak.

On July 28, the Rochester, N.Y., company and the Trump administration announced the onetime photography giant was in line to receive a $765 million loan to help manufacture drug ingredients for the fight against the coronavirus and future health crises.

Even before the loan was announced, shares of the company surged. The Wall Street Journal previously reported that tweets and news stories from television stations in Kodak’s hometown of Rochester, N.Y., spurred trading in Kodak’s stock, in part thanks to a press advisory.

Then, in the days following the official announcement of the loan, the company’s stock surged, then fell precipitously. The Securities and Exchange Commission and several Democrat-led congressional committees opened investigations to examine the timing of option grants given to Kodak Executive Chairman Jim Continenza and other executives, among other things.

In its review, the special committee said the company didn’t break any laws related to its disclosure of the loan. It blamed the disclosure issues on a junior employee, who was able to modify the media advisory in a way that made it appear as if the information wasn’t embargoed, meaning scheduled for publication at a later time.

On the options grants, the special committee said there was no intent to manipulate their timing.

”The grants were in the works long before Kodak was aware of the [loan] and they had legitimate business purposes,” said the report.

The report also examined a well-timed gift made by Kodak board member George Karfunkel on the same day the stock’s price peaked. In a securities filing, Mr. Karfunkel and his wife, Renee Karfunkel, said they donated 3 million of their 6.3 million Kodak shares to Congregation Chemdas Yisroel in Brooklyn, N.Y.

The donation was one of the largest ever made to a religious institution.

The special committee said that based on the information provided by Mr. Karfunkel during his interview, it doesn’t appear that the charitable gift violated federal securities laws. In addition, Kodak’s policies didn’t clearly prohibit Mr. Karfunkel from making the gift, even though it occurred during a closed trading window.

Even so, the committee said that the circumstances of the gift raised significant concerns from a corporate-governance perspective.

As a result, the special committee made a host of recommendations concerning the gift and other issues that it hoped would improve Kodak’s governance, disclosure and other policies.

Among them, the legal department should undertake additional hires, noting a lack of resources could be the root cause for the existence of some outdated policies. It should also update its policies regarding insider trading, the options-grant process and the process for managing contact with the media and other third parties.

Kodak should also enhance the rigor of its insider-trading processes to ensure all relevant personnel are aware of the policies. Moreover, the insider- trading policies should apply equally to both Kodak officers and employees that are deemed insiders and to members of the board.

Regarding the options grants to Mr. Continenza, the special committee recommended that the board and Mr. Continenza amend the options grants received on July 27 to vest in yearly thirds on the anniversary date of the grant or use a similar methodology.

The Journal previously reported that the Kodak plans were spearheaded by Peter Navarro, President Trump’s trade adviser, who worked with the U.S. International Development Finance Corp. to prepare the deal. The federal agency was granted powers earlier in the pandemic to make loans to businesses in connection with the coronavirus.

Earlier this week, the Journal reported that the newly named inspector general of the agency told Sen. Elizabeth Warren (D., Mass.) that his office was opening a review of the loan.

That inquiry is the latest known government probe of the planned transaction.

A Kodak spokeswoman has said the company would cooperate with any SEC investigation and congressional inquiries. The spokeswoman has also said Kodak is well-positioned to support the initiative to manufacturer drug ingredients.

It was unclear if the Kodak loan will go through. Last month the International Development Finance Corp. put the plans on hold.

Write to Geoffrey Rogow at geoffrey.rogow@wsj.com

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Appeared in the September 16, 2020, print edition as ‘Kodak Panel Finds No Illegalities.’

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