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Law360 (May 17, 2021, 8:52 PM EDT ) Eastman Kodak Co. said Monday that the New York attorney general has threatened to file a lawsuit over CEO Jim Continenza's purchase of shares a month before the company's July announcement of a since-scrapped $765 million government loan.
The onetime photography giant said in a quarterly regulatory filing that it intends to "vigorously defend itself" should New York Attorney General Letitia James move forward with claims that the company and its CEO violated the state's Martin Act when Continenza bought 46,737 shares of Eastman Kodak stock on June 23.
The Trump administration announced on July 28 that it had plans to provide Kodak $765 million to support the creation of its own pharmaceutical manufacturing wing — a deal that was put on hold following reported government investigations into Kodak's handling of the announcement. The loan is no longer expected to happen.
Kodak said in a statement Monday that the AG is weighing a suit "premised on an unprecedented and novel application of insider trading law that seeks to impose liability in the absence of evidence of intent."
"The threatened litigation would not be supported by legal precedent or the facts," the company said. "Mr. Continenza did not engage in insider trading."
James' office declined to comment Monday.
The company previously confirmed that it became the subject of an investigation by the U.S. Securities and Exchange Commission over its announcement that the U.S. International Development Finance Corp., better known as the DFC, had signed a nonbinding letter of interest to provide a $765 million loan that would support the launch of Kodak Pharmaceuticals.
The loan news sent Kodak's stock price soaring, but the deal started to fall apart after it was reported that the SEC was investigating the circumstances of the July 28 announcement. As noted in an August letter to the SEC from Sen. Elizabeth Warren, D-Mass., average trading volume for Kodak's publicly traded shares rose eightfold and its stock price rose by roughly 20% on July 27, fueling speculation of potential insider trading.
Media outlets took notice, leading to reporting that the unusual pre-announcement trading may have been linked to an embargoed news release being shared prematurely by certain news stations in Rochester, New York.
The DFC said on Aug. 10 that it would put the loan on hold over "recent allegations of wrongdoing" and would "not proceed any further unless these allegations are cleared." Kodak said at the time that it had launched an internal review into the loan announcement, which culminated in a September report finding no law violations.
Still, Kodak said in its quarterly report Monday that while the letter of interest from the DFC hasn't been formally terminated, it is operating on the assumption that the loan "as envisioned at the time of the DFC announcement will not proceed" in light of the time that's elapsed since the announcement and the administration change at the DFC and federal government.
The company acknowledged that it is facing shareholder litigation in federal and state court relating to its loan announcement and allegedly related stock trading by Kodak executives, as well as the threatened claim from New York's attorney general.
Warren's August letter also drew attention to Continenza's June 23 share purchase. A Kodak spokesperson addressed the purchases in a statement to Law360 at the time, saying the CEO had bought Kodak stock at "nearly every available window" since he joined the company and had not sold a single share.
Kodak similarly said in its quarterly report Monday that Continenza's June 23 purchase came during an "'open window' period and in compliance with the company's insider trading policy, including pre-approval by its general counsel," adding that a potential claim from James' office would be "unsupported by law or fact."
"As we understand the attorney general's theory, the contemplated lawsuit would have a chilling effect on directors and executives of every public company, who could never invest in their own companies without fear of having good-faith decisions, pre-approved by counsel, second-guessed by regulators and charged as violations of law," the company said in a statement.
--Editing by Orlando Lorenzo.
For a reprint of this article, please contact reprints@law360.com.
