Eastman Kodak's recent roller-coaster ride continued on Tuesday with shares jumping as much as 65% on the back of D.E. Shaw establishing a position in the company.
A filing with the Securities and Exchange Commission on Monday night showed that the hedge fund has a 5.2% passive stake in Kodak. However, D.E. Shaw is a quantitative trading firm meaning the stocks they buy and sell are not necessarily aligned with the company's long-term view of a particular stock. In other words, their new position could simply be a short-term trading bet.
During early trading Kodak jumped 65% to hit a session high of $9.87. But the stock retreated from that level throughout the day and wound up closing at $7.30 for a gain of 22.07%.
Shares of Kodak have been highly volatile over the last month — rising dramatically after the Trump administration said it would loan the company $765 million to pivot into drug production, and then cratering after the loan was sidelined following regulatory and congressional scrutiny. Prior to the announcement shares traded around $2.10. Just three days later, they touched $60. Since then they've moved steadily lower, and on Monday closed at $5.98.
The $765 million lifeline for the onetime photography pioneer was officially announced on Tuesday, July 28. But the stock jumped more than 20% the prior day on heavy trading volume, leading some on the Street to question how the letter of interest between Kodak and the DFC was disclosed. Additionally, securities filings show that company executives were granted stock options prior to the announcement when discussions were already underway.
Kodak is now under investigation by the SEC, and the DFC said in August that the "recent allegations of wrongdoing raise serious concerns." The governmental agency said it would "not proceed any further unless these allegations are cleared."
Senator Elizabeth Warren has called for an investigation into why the loan was granted to Kodak in the first place.
"The fiasco surrounding the decision to offer, then revoke, the Kodak loan also raises larger questions about corruption, nepotism, and mismanagement in the Trump Administration's response to COVID-19," Warren wrote to Michael Horowitz, acting chair of the Pandemic Response Accountability Committee on August 20.
"It is not at all clear why President Trump, in his Executive Order, chose to give the DFC ... this new loan authority — but the mismanagement of the Kodak loan raises new concerns that it may be fundamentally unsuited to the task," it added.
The democratic senator from Massachusetts previously called for an insider trading investigation. "There were several instances of unusual trading activity prior to the announcement, raising questions about whether one or more individuals may have engaged in insider trading or in the unauthorized disclosure of material, nonpublic information regarding the forthcoming $765 million loan awarded under the Defense Production Act," she wrote in an open letter dated Aug. 3.
Condemnation of the dubious trading and executive purchases isn't confined to Democrats. White House trade advisor Peter Navarro blasted Kodak executives on for their handling of the loan announcement.
"Based on what I'm seeing, what happened at Kodak was probably the dumbest decisions made by executives in corporate history," Navarro said Aug. 17 on CNBC's "Squawk Box."
During the company's second quarter earnings call Kodak executives reiterated that the deal was a letter of interest, meaning it had not been finalized. Executive Chairman Jim Continenza said that the deal needed more work.
In August Kodak announced an internal investigation.
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