Kodak’s stock price soared Wednesday after an investigation cleared company bosses of insider trading allegations stemming from its attempted pivot to pharmaceuticals.
Shares in the onetime photography giant surged as much as 83 percent to $11.40 in early trading following the Tuesday release of a report from the law firm Akin Gump, which Kodak’s board hired to review the stock transactions made around the time it snagged a $765 million federal loan to produce drug ingredients.
The probe concluded Kodak and its bosses did not break any laws or violate company policies with the transactions around the loan announcement, which reportedly sparked federal investigations and led the US International Development Finance Corporation to put the deal on hold until the allegations were cleared.
But the lawyers urged the Rochester, New York-based company to beef up its corporate governance practices to avoid another controversy.
“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,” Kodak CEO Jim Continenza said in a statement.
The probe examined Continenza’s purchase of roughly 46,000 Kodak shares about a month before the loan was disclosed — which netted him two-day profit of more than $200 million as the stock price surged — along with other transactions including Kodak’s award of stock options to senior executives a day before the July 28 announcement.
Kodak’s general counsel cleared Continenza and board member Philippe Katz to buy shares in June because the company’s application for the loan “was at a highly uncertain stage” at the time, the investigation found. They also provided explanations for the purchases that were unrelated to the loan bid, according to the report.
Additionally, the options Kodak granted its executives on July 27 had been discussed before the company sought the loan, the lawyers wrote. While it’s “controversial” to award options before announcing positive news, it was not illegal under federal or state rules, the report says.
But Kodak’s general counsel, or top lawyer, followed a flawed process that failed to alert Kodak’s board to concerns about the timing of the grants, the review found. The lawyer also said he sometimes felt “overwhelmed” by his workload and that the legal department had “thin” resources, according to the report.
The probe also faulted Kodak for inadvertently leaking the announcement to local news outlets a day early, finding “a general lack of sensitivity among certain Kodak employees regarding the need to carefully control the release” of potentially material non-public information.
Wednesday’s stock surge continued a wild ride for Kodak’s shares, which climbed as high as $60 on the day of the loan announcement but fell to $6.02 a month later.
Continenza’s all clear also comes just weeks after New York-based hedge fund D.E. Shaw disclosed it had built up a 5.2 percent stake in Kodak.
Wednesday’s spike put the moribund camera company’s stock at almost double what D.E. Shaw paid for roughly 4 million shares on Aug. 26.