House lawmakers on Thursday questioned the findings of the law firm hired by Kodak's special committee to conduct an internal review of events surrounding a planned $765 million federal loan that sent the company's stock price soaring.
Securities transactions made by Kodak CEO Jim Continenza around the time the company learned it could receive the massive loan prompted investigations by lawmakers. Suspicious trading activity around the time of the announcement has also raised concerns about the manner in which the deal was disclosed.
The D.C. law firm, Akin Gump Strauss Hauer & Feld, said Tuesday in a report to a special committee of independent directors at Kodak's board that Continenza's transactions did not violate company policy or securities laws. However, the investigators did note "several flaws in the process."
Rep. James Clyburn, D-S.C., chairman of the Select Subcommittee on the Coronavirus Crisis; Rep. Maxine Waters, D-Calif., chairwoman of the Committee on Financial Services, and Rep. Carolyn Maloney, D-N.Y., chairwoman of the Committee on Oversight and Reform, said their committees will continue to investigate the contract.
"The report from Kodak's lawyers raises more questions than it answers about the Trump Administration's efforts to provide the company a $765 million loan to produce pharmaceutical ingredients despite Kodak's lack of experience in the field," they said in a joint statement. "Let's be clear: this report does not represent the findings of any regulator; it is a report generated by a law firm hired by Kodak."
In a statement to CNBC, Kodak said they are aware of the comments by the lawmakers and added that the company is cooperating with all "third-party regulatory inquiries on these matters."
"Kodak maintains that the launch of a pharmaceutical division would: bolster the domestic response to COVID-19; help increase U.S. supply chain resilience; modernize the national stockpile of pharmaceuticals; and bring pharmaceutical manufacturing and associated jobs back to America," the company said in a statement.
In July, President Donald Trump announced the plans to loan $765 million to Kodak, once known for producing camera film, in order to ramp up domestic manufacturing of drug ingredients under the Defense Production Act. In the days following the announcement, Kodak shares soared more than 2,000%.
But in early August, the U.S. International Development Finance Corporation, which has been charged with rebuilding the national stockpile of medical supplies during the pandemic, said it was halting the deal as regulators reportedly look into suspicious trading activity surrounding the stock move.
A probe by the Securities and Exchange Commission is focused on how Kodak disclosed the deal with the government, according to The Wall Street Journal.
"Kodak's lawyers deny the company violated securities law, but the Securities and Exchange Commission must independently and carefully scrutinize this matter," the three lawmakers said Thursday.
The lawmakers emphasized that Kodak's internal review demonstrates how active White House trade advisor Peter Navarro was in forming the deal. Navarro has spearheaded the administration's use of the Defense Production Act to shore up domestic manufacturing.
Akin Gump said an official from the Biomedical Advanced Research and Development Authority recommended Kodak connect with Phlow, a pharmaceutical manufacturing company. After a number of conversations between Kodak and Phlow executives, Phlow connected Kodak with Navarro in early April.
"Kodak's understanding was that Navarro could potentially help Kodak find a path to partnering with a government agency that was working on responding to the COVID-19 crisis," Akin Gump's report says. After several follow-up conversations, Akin Gump said, Kodak employees concluded that "the federal government, generally, were not serious about, or were not focused on, pursuing engagement with Kodak."
In a May 22 call, Kodak employees said the company would need $27 million in capital and support to obtain approval from the Food and Drug Administration to satisfy a deal, the law firm said.
"Kodak participants recalled in interviews that Navarro responded that he wanted Kodak to 'think bigger' and more long term regarding its proposal," Akin Gump reported. In early June, the law firm said, Kodak's communications with Navarro and the White House had tapered off and they were now communicating directly with officials at the Development Finance Corporation.
In an Aug. 17 interview with CNBC, after the deal with Kodak had been halted, Navarro slammed executives at Kodak for mishandling the deal. He called their handling of the deal "probably the dumbest decisions made by executives in corporate history."
Last month, a House Oversight subcommittee opened an investigation of all federal contracts negotiated by Navarro after another contract he was involved in also fell through, Rep. Raja Krishnamoorthi, D-Ill., told CNBC.
"The report also shows senior White House officials, including Assistant to the President Peter Navarro, were heavily involved in arranging the loan, contrary to recent efforts to distance the White House from this deal," the lawmakers said Thursday. "Our Committees plan to vigorously pursue our ongoing investigation into this matter, and we expect full cooperation from Kodak and the Administration."