• Kodak had received a $765 million loan to make drug ingredients in the battle against COVID-19.
  • White House economic adviser Peter Navarro said he was “very disappointed” by allegations
  • Kodak said it formed a special committee of independent directors to conducr internal review of the matter

Shares of Eastman Kodak (KODK) have plunged more than 40% in premarket trade on Monday after the government paused a $765 million loan for the company to make drug ingredients in the battle against COVID-19.

Both the Securities and Exchange Commission and prominent Democratic lawmakers, including Sen. Elizabeth Warren of Massachusetts, have raised questions about unusual changes in Kodak’s share price and trading volumes in connection with disclosure of the aforementioned loan.

“Recent allegations of wrongdoing raise serious [and] concerns. We will not proceed any further [with the loan] unless these allegations are cleared,” the U.S. International Development Finance Corp., a federal agency, tweeted Friday evening.

On Friday, White House economic adviser Peter Navarro commended the Development Finance Corp. for its action, adding that he was “very disappointed” about the allegations concerning Kodak.

The SEC has moved to formally investigate the issues surrounding Kodak’s loan disclosure, as well as stock options granted to executive chairman James Continenza prior to the announcement of the loan on July 28.

On the Monday just ahead of the public disclosure of the loan, Kodak’s share trading volume skyrocketed almost eightfold while the stock price jumped 25%.

“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 in a letter to SEC Chair Jay Clayton.

On Wednesday after the announcement, the share price briefly surged to an intra-day high of $60 – from below $3 the prior day -- presumably benefitting Kodak executives with stock grants.

(Last Friday, Aug. 7, Kodak shares settled just under $15).

CNBC reported that during the period of extreme trading volatility, about 100,000 traders on the Robinhood app bought up Kodak shares, thereby intensifying its volatility.

Warren added: “There were several instances of unusual trading activity prior to the announcement, raising questions about whether one or more individuals may have engaged in insider trading or in the unauthorized disclosure of material, nonpublic information regarding the forthcoming $765 million loan awarded under the Defense Production Act.”

Also on Friday, Kodak said it formed a special committee of independent directors of the board to “oversee an internal review of recent activity by the company and related parties in connection with the announcement” of the government loan.

The internal review will be conducted for the committee, which comprises includes Kodak directors Jason New and William G. Parrett, by Akin Gump Strauss Hauer & Feld LLP, a New York-based law firm.

Kodak added it does not “intend to make further public comment on the committee’s work during the pendency of the review.”