Eastman Kodak shares fell more than 40% to their lows on Monday after a federal agency announced it was considering a previously announced $ 765 million loan for the former pioneer of photography for the manufacture of pharmaceutical ingredients.
"The recent allegations of misconduct raise serious concerns. We will not proceed until these allegations are resolved," said the US International Development Finance Corporation in a tweet on Friday.
The funding review comes as the Securities and Exchange Commission is reportedly investigating how the company disclosed the deal with the government, according to a report in the Wall Street Journal. The investigation is also set to examine stock options granted to CEO James Continenza prior to the announcement.
After the initial drop in early trading, stocks rebounded somewhat, trading 29% lower as of 1:50 p.m. ET. At one point in the morning the stock stopped because of volatility.
The stock has been on a wild ride since funding was announced on Tuesday, July 28. However, trading activity picked up the day before the official announcement, which raised some eyebrows on the street.
The day before the transaction was announced, the share rose 25% and 1,645,719 shares were exchanged, which, according to FactSet, far exceeded the average daily trading volume of 236,479 in the previous year.
When news of the deal broke, Kodak, which had traded below $ 2, shot up. In two days, the stock was trading at $ 60, with 284 million shares changing hands. In just 24 hours, according to Robintrack, more than 100,000 investors added the stock to their Robinhood account, an app popular with millennial investors. The stock was so volatile the day after the announcement – at one point it rose more than 600% – that it was stopped 20 times during the session.
But momentum didn't last, and on Friday the stock closed at $ 14.88, or 75% below its recent high. However, the current price is still more than 400% above what the stock was trading at before the loan was announced.
The loan, which was the first of its kind under the Defense Production Act, was intended to help the company at its fulcrum for drug production. With the funding, Kodak announced that it would expand existing facilities in Rochester, New York and St. Paul, Minnesota, under a new Kodak Pharmaceuticals division that would manufacture drugs for the treatment of a variety of diseases.
"Our 33rd application of the Defense Production Act will mobilize Kodak to manufacture generic active pharmaceutical ingredients," said President Donald Trump when announcing the deal. "We will bring our jobs back and make America the world's leading medical manufacturer and supplier."
The president later went back on his comments saying he was "not involved in the credit".
Kodak released the news to local reporters in Rochester, New York, where the company is headquartered, on July 27th, then asked several outlets that picked up the story to delete it, which they did. According to a Kodak spokesman, the company's internal communications team "had no intention of releasing the news."
"We are very comfortable reaching the final," said James Continenza, Executive Chairman of Eastman Kodak, after announcing the deal to CNBC's "Squawk Box". "We signed a letter of interest and have been working on it for several months. We are very comfortable," he added.
Filings with the Security and Exchange Commission show that Continenza bought approximately 46,700 additional shares on June 23. On the same day, Executive Board member Philippe Katz acquired 5,000 shares. In addition, the day before the announcement of the transaction, the company granted Continenza options for 1.75 million shares, of which almost 29% were immediately vested.
White House economic adviser Peter Navarro on Friday praised the DFC for its move and said he was "very disappointed" with the allegations.
Senator Elizabeth Warren, D-Mass., Has asked the SEC to investigate the trade that occurred prior to the official announcement.
"Prior to the announcement, there were several cases of unusual trading activity that raised questions about whether one or more people might be insider trading or material non-public information about the upcoming $ 765 million loan granted under the Defense Production Act, Have unauthorized disclosure, "Warren wrote in an open letter.
The US House Financial Services Committee has also called for an investigation into the company, citing "growing concerns about insider trading".
Kodak previously announced that it would work together on potential inquiries, and on Friday the company announced it would open an internal investigation.
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