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Law360 (June 15, 2021, 10:43 PM EDT) -- A New York state judge ordered Eastman Kodak Co.'s CEO and its general counsel on Tuesday to publicly testify in the state attorney general's insider trading investigation of stock buys the CEO made ahead of last summer's announcement of a $765 million government loan that's since been scrapped.
The order signed by Justice Barbara Jaffe schedules CEO Jim Continenza to testify about his purchase of 46,737 Kodak shares last June, roughly a month before the Trump administration announced its plans to provide Kodak $765 million to support the creation of its own pharmaceutical manufacturing wing.
Those plans were later put on hold following reported government investigations into Kodak's handling of the announcement, and the loan is no longer expected to happen.
Justice Jaffe's order also calls for Kodak's general counsel, Roger Byrd, to testify about statements the company made in regulatory filings last month about Continenza's June 2020 stock purchase as being "in compliance with the company's insider trading policy, including pre-approval by its general counsel."
Continenza is scheduled to testify on Oct. 1, while Byrd's testimony is slated for Sept. 24, according to the order.
"Today's order will force Mr. Continenza and Kodak's general counsel to testify in open court, where the facts will be exposed before the American people," New York Attorney General Letitia James said Tuesday in a statement. "Corporate executives don't get to play by their own rules, which is why my office will use every tool at its disposal to hold those who violated the law accountable."
James said that Kodak's insider trading policy requires a prospective insider to seek preclearance by email at least one day before trading and to wait for approval — "neither of which occurred."
A spokesperson for Kodak told Law360 on Tuesday that the ruling was "strictly procedural and fully expected."
"It has nothing to do with the merits of the case," the spokesperson said. "Jim Continenza was precleared to trade by the company's general counsel. He did nothing wrong. We are confident that the facts and the law are on our side and are fully prepared to present our case in court."
Continenza purchased Kodak stock on June 23, 2020, in the thick of the COVID-19 pandemic while "leading secret discussions" with the Trump administration for a loan that would have enabled Kodak to repurpose legacy assets for the production of chemicals used to make medicine for hospitalized COVID-19 patients, James said earlier this month when she filed a petition with the court for Continenza's testimony.
When the Trump administration announced on July 28 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, Kodak's stock price soared to a high of $60 per share — more than 27 times what Continenza paid weeks earlier, according to James.
The project was expected to generate $300 million annually for the company by 2025, but started to fall apart after it was reported that the U.S. Securities and Exchange Commission 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 insider trading.
Media outlets took notice, leading to a news report that the unusual, preannouncement trading may have been linked to an embargoed news release being shared by certain news stations in Rochester, New York, where Kodak is headquartered.
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 claiming no law had been broken.
Still, Kodak said in its quarterly report last month that it is operating on the assumption that the loan "as envisioned at the time of the DFC announcement will not proceed."
The report also revealed that James' office had threatened to sue over Continenza's June 2020 share purchase. But the company has insisted that "Continenza did not engage in insider trading" because the purchase came during an "'open window' period and in compliance with the company's insider trading policy, including pre-approval by its general counsel."
James said in her statement Tuesday that Kodak had effectively "double-downed on this fraud by relaying false information about this trade," which came just two days before Kodak's annual meeting, where shareholders voted to retain Continenza as Kodak's executive chairman and endorse his compensation package.
--Additional reporting by Al Barbarino. Editing by Adam LoBelia.
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