On Tuesday, Judge Elizabeth A. Wolford ended the plaintiffs’ bid to hold Eastman Kodak Company (Kodak) and its leaders accountable for the rise and precipitous fall of its stock in the summer of 2020 when the company was in discussions with the United States International Development Finance Corporation (DFC) to use Kodak manufacturing facilities to produce COVID-19-related pharmaceuticals in a $765 million loan. The 34-page opinion out of Rochester, New York said that the Kodak investor plaintiffs failed to meet multiple elements of their securities fraud claims.
According to the ruling, the suit dates to the summer of 2020 when the company allegedly engaged the DFC about the potential loan. Before the public knew, several executives, including Executive Chairman James V. Continenza purchased thousands of shares of the company’s stock trading at just over $2. In addition, a compensation committee of the board granted Kodak’s senior management, including Continenza, “spring-loaded” options allowing these defendants to purchase Kodak shares at a pre-arranged strike price that would be worth millions if the price surged.
On July 27, local news reporters in Rochester began tweeting information about a Kodak initiative to manufacture COVID-19 medication after the company allegedly leaked the news. The stock began to trend upwards, reaching nearly $10 per share. The next day, the DFC issued a statement confirming the contemplated deal with Kodak, causing the stock to reach a high of $60 per share.
But trouble loomed, the complaint said. Kodak’s share price fell when the company disclosed the options grant to senior management. By early August, Senator Elizabeth Warren asked regulators to examine possible insider trading and reports of an SEC probe circulated.
On August 7, the DFC backed out of the deal, citing concern with the possible wrongdoing, and Kodak shares fell to close at $10.73 apiece, the opinion recounted.
Damaged investors sued for securities fraud and unjust enrichment with a class period from July 27 to August 11, 2020. They stated several claims against Kodak and Continenza and against the company’s board. The defendants subsequently moved to dismiss.
Judge Wolford ruled that the plaintiffs failed to put forward defendant-made misstatements or omissions of material fact in connection with the DFC loan. For example, the opinion found one of Kodak’s press-made statements inactionable as a “classic example of non-actionable puffery and/or corporate optimism.” Other remarks made by Continenza on national news programs about his confidence in Kodak’s securing the loan were declined as “statements of belief, opinion, and/or corporate puffery that cannot form the basis for a Rule 10b-5(b) claim.”
As to the claim that the stock grant was wrongful and a scheme to unjustly enrich the defendants, the court said that the plaintiffs pointed to no evidence that they violated Kodak’s Executive Compensation Policy or how the option granted violated a should-have-been blackout period.
Lastly, Judge Wolford deemed the plaintiffs’ market manipulation/scheme liability claim “conclusory” and void of detail about how the stock options granted to senior management were deceptive or manipulative.