On Wednesday, two plaintiffs filed a class-action securities fraud complaint against Eastman Kodak Company (Kodak) and one of its executives following business development announcements made by the company that allegedly caused its stock price to rise and then fall dramatically. The complaint seeks damages on behalf of people and entities who purchased publicly traded Kodak shares from July 27 through August 11 of this year.
Kodak, a company previously recognized as a titan of the photography industry, emerged from bankruptcy in 2013 with a new face. The company now regards itself as “a global technology company focused on print and advanced materials and chemicals, providing hardware, software, consumables and services primarily to customers in commercial print, packaging, publishing, manufacturing and entertainment,” according to a Securities Exchange Commission filing it made earlier this year.
On July 27, Kodak allegedly leaked information to national news sources that “could change the course of history for Rochester and the American people.” The same day, the company “secretly” granted its Executive Chairman, defendant James V. Continenza, 1.75 million stock options, and awarded 45,000 stock options each to its chief financial officer, vice president, and general counsel. Its stock also rose 25% to close at $2.62 per share during unusually heavy trading volume.
Before the market opened on July 28, Kodak announced that it was set to receive a $765 million “transformative loan” from the U.S. International Development Finance Corporation (DFC). With the money, Kodak would form a new business unit to produce pharmaceutical components, including essential ingredients for COVID-19 drugs. According to the complaint, “these statements and others made by the Defendants represented to investors that the $765 million Loan from the government was a done deal.” In reaction to the news, the stock price rocketed 350% from the previous day to close at $11.80 per share, the complaint said.
Subsequently, Continenza spoke on national television, expressing confidence in Kodak’s ability to secure the loan and that he was “very comfortable that we can bank on (it).” For the next two days, the stock price continued to soar, reaching its peak at $60 per share, according to the filing. The plaintiffs also note that, because of the boon, “Continenza’s newly granted options alone increased from zero to more than $50 million over just a few days.”
Allegedly, the truth began to emerge on July 29 when media outlets reported that the company tried to retract the story after it was first leaked, presumably in recognition of the fact that it had just granted massive stock options to executives and that the DFC loan was far from secured. In the following week, Kodak, its executives, and a board member made several other blunders that provoked skepticism and raised Congressional concern over insider trading.
On August 11, Kodak held a conference call regarding its financial results for the second quarter. Continenza spoke on the call and walked back statements about his confidence in the DFC loan, he “repeatedly referred to the Loan as a ‘potential loan,’ in stark contrast to his statements on July 29, 2020 that the Loan was effectively a done deal.” According to the complaint, the share price fell to $9.72 following this news.
The plaintiffs contend that the defendants’ false and misleading statements about the DFC loan, accompanied by the unfavorable inferences drawn from the executives’ stock grants, amount to fraud in violation of the Securities Exchange Act of 1934. For the harm to the putative class of stock purchasers, the plaintiffs seek class certification, damages, and litigation costs and fees.
The plaintiffs are represented by Kaplan Fox & Kilsheimer LLP.