Shares of Eastman Kodak, which initially surged on an announcement that the government would provide a $ 765 million loan to help shift its efforts into the drug industry, tanked on Monday amid news that the deal would be put on hold as regulators look into allegations of wrongdoing.
Eastman Kodak’s stock plunged by more than 40% on Monday morning after a federal agency said in a tweet it was withholding the $ 765 million loan.
“Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared,” the U.S. International Development Finance Corporation (DFC) said in a recent statement about the deal.
Kodak stock jumped 25% a day before the loan was announced sparking the attention of the Securities and Exchange Commission (SEC) which is now looking into the circumstances of the deal.
The stock was also so volatile the day after the announcement—with more than 100,000 retail investors adding it to their portfolios in Robinhood—that it was halted 20 times in one day.
Kodak shares have recovered since the initial plunge this morning and are now down by nearly 30%; shares are up 270% so far this year.
The $ 765 million loan awarded to Kodak was the first of its kind under the Defense Production Act with the goal of helping the company, which has been historically focused on photography, to pivot to drug production. The company said it would use the loan to expand existing facilities and launch a new Kodak Pharmaceuticals arm which would focus on making “generic, active pharmaceutical ingredients,” as Trump described when announcing the deal. Trump later walked back his comments, however, adding that he was “not involved” in the loan.
What to watch for
Kodak released news of the loan to reporters in Rochester, New York on July 27, a day before Trump publicly announced the deal. Several outlets had picked up the story before Kodak then asked them to delete it. The company’s internal communications team reportedly “did not intend for the news to be published,” according to a Kodak spokesperson. SEC filings show that on June 23, Kodak’s CEO and chairman, James Continenza, purchased roughly 46,700 additional shares in the company. A day before the federal loan was announced, Kodak granted him options for an additional 1.75 million shares, almost 29% of which he vested immediately. There has not yet been any indication from regulators that Continenza’s stock purchases are at the center of investigation, however.
Kodak said on Friday that it launched an internal investigation and will cooperate with any inquiries from federal agencies. In an open letter to the SEC, Senator Elizabeth Warren (D-Mass.) called on the agency to look into the spike in trading that occurred before the announcement, raising concerns about “insider trading” or “unauthorized disclosure of material, nonpublic information.” The House Financial Services Committee similarly called for an investigation into the company due to “growing concern regarding insider trading.”