DFC puts deal with Kodak on hold over 'allegations of wrongdoing'

Berkeley Brean and Andrew Hyman
Updated: August 08, 2020 06:55 PM
Created: August 08, 2020 11:09 AM

ROCHESTER, N.Y. (WHEC) — The U.S. International Development Finance Corporation (DFC) says its deal with Eastman Kodak is on hold.


The DFC tweeted Friday “recent allegations of wrongdoing raise serious concerns” surrounding the $765 million loan agreement with Kodak to produce generic prescription drugs and launch Kodak Pharmaceutical.

The DFC goes on to say they “will not proceed any further unless these allegations are cleared.”

President Donald Trump's Director of the Office of Trade and Manufacturing Policy Dr. Peter Navarro was at the Kodak Center for the signing and called it the "greatest second act in American industrial history."

Navarro tweeted Friday, saying, "VERY disappointed last week’s great deal with Kodak tarnished by allegations. Absolutely RIGHT move by DFC! We must redouble efforts to bring our pharma manufacturing home!!”

Here is what happened and the timeline of events. 

On Tuesday, July 28, the DFC and Kodak signed a letter of interest, the first step in the loan. The deal shot Kodak’s stock price from roughly $2 a share to as high as $60 a share. It’s currently at $14.88.

But the stock price started going up the day before the deal was officially announced and the letter was signed. That’s because Kodak sent out a press release on Monday, July 27, alerting media outlets to the following day’s event and teasing it as a “new manufacturing initiative” that could “change the course of history for Rochester and the American people.”

There was no embargo on the release and it was published. One hour and 15 minutes after they released it, the White House Communications Office emailed News10NBC saying the release was off the record.

However, by the end of trading Monday, the volume of Kodak shares moved was 1.6 million, and the stock price increased 250%. 

The average volume of Kodak stock moved the prior two weeks was 110,000. On the Friday before the deal, the volume was only 74,000.

Records filed with the Securities and Exchange Commission (SEC) also show Kodak’s executive chairman and others had stock options filed on Monday, July 27. The options included shares valued for as little as $3.

The Wall Street Journal reported on Aug. 4, the SEC was looking into the events and actions surrounding the loan announcement.

On Friday, Aug. 7, Kodak announced it launched an internal review.

News10NBC spoke to Brighton Securities Chairman George Conboy on Saturday. He says the large loan would have been a ‘lifeline" for the company, but right now it seems to be falling apart.

Conboy says the stock deals could be routine ones the companies make, but cautions the investigation is far from finished. Even at its quickest, he says the investigation could likely last a couple of months, and given the political nature of a government loan, coupled with an election year and a possible change of administration could change everything for the company even if no wrongdoing is found.

"If they do it really quickly, things could get back on track, but if they don't, there's a real question whether this will ever happen," Conboy said.

For investors, he forecasts stocks will continue to drop come Monday morning. In the meantime, Conboy advises the company to wait and cooperate.

"Transparency and honesty is always important in a case like this," Conboy said.

News10NBC reached out to Kodak for comment and were told the company has no comment. We also reached out to the DFC, a spokesman told us they have not issued a statement beyond the tweets.

Here is some background on the deal.

Kodak would use the $765 million loan to transform parts of Eastman Business Park, formerly Kodak Park, to manufacture the main ingredients to make generic drugs. Currently, 90% of those ingredients are made in other countries. The deal would make Kodak produce 25% of all the material within five years. The deal also could create up to 360 new jobs.

Under the Defense Production Act signed by President Donald Trump in May, the DFC is authorized to loan Defense Department money in matters of national security.

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