Chairs Clyburn, Maloney and Waters Press Kodak Directors on $765 Million Loan and Windfall for Executives and Board Members
Washington, D.C. (September 28, 2020)—Today, Rep. James E. Clyburn, Chairman of the Select Subcommittee on the Coronavirus Crisis, Rep. Maxine Waters, Chairwoman of the Committee on Financial Services, and Rep. Carolyn B. Maloney, Chairwoman of the Committee on Oversight and Reform, sent letters to the outside directors of the Eastman Kodak Company (Kodak) requesting documents regarding the Trump Administration’s effort to award a $765 million federal loan to Kodak for the production of ingredients for generic drugs, as well as questionable securities activity by Kodak executives and board members surrounding the loan announcement.
On July 28, 2020, the U.S. International Development Finance Corporation (DFC) announced the administration’s interest in awarding Kodak a $765 million federal loan to support the production of pharmaceutical ingredients, using loan authority granted to DFC in connection with the coronavirus pandemic.
Today’s letters follow the Chairs’ August 4, 2020, document request to Kodak Executive Chairman James Continenza. In response to that request, counsel for Kodak informed the Committees that the company was not able to produce documents and communications possessed by Kodak’s outside directors.
“Companies and individuals that receive federal funds in response to the coronavirus crisis must follow the law and not engage in abusive practices,” the Chairs wrote.
DFC’s announcement of its intent to award this loan to Kodak despite its lack of pharmaceutical experience and the potential windfall gained by board members and executives raise serious questions that must be thoroughly examined.
Prior to the public announcement, the company reportedly awarded 240,000 stock options to its board members on May 20, 2020. On June 23, Kodak CEO James Continenza purchased roughly 46,700 additional shares of Kodak and board member Phillipe Katz purchased 5,000 shares. On July 27, the day before news of the loan became public, Kodak’s board awarded Mr. Continenza 1.75 million stock options, reportedly based on an unwritten “understanding” with the board of directors.
One day after the loan was announced, Kodak director George Karfunkel reportedly donated three million shares of Kodak stock worth approximately $116 million to a religious charity. The recipient, Congregation Chemdas Yisroel, was founded by Mr. Karfunkel in 2018 and has an extremely limited physical and online presence. This donation likely provided Karfunkel with a significant tax deduction and lowered his stake in Kodak below the threshold that requires investors to report stock transactions.
On August 7, one day after the Chairs launched their investigation, DFC put the deal on hold, announcing via Twitter: “Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared.”
On September 15, a law firm representing both Kodak and a special committee of the Kodak board of directors, released a report regarding the proposed loan. The report denied the company broke securities laws but acknowledged “several flaws in the process” surrounding the proposed loan and stated that the circumstances of Mr. Karfunkel’s donation “raise significant concerns from a corporate governance perspective.”
Today’s letter seeks documents related to the Kodak directors’ involvement in DFC’s proposed loan, the board’s decision to issue stock options to Mr. Continenza and board members, and trades in Kodak stock surrounding the loan announcement.
Click below to read today’s letters to Kodak’s outside directors: