A recently launched investigation into Kodak’s $765 million government loan is more about timing than the validity of the loan.
Last week, President Donald Trump announced Kodak is receiving the loan to manufacture drug components in its U.S. factories as a way to expand its business. The Securities and Exchange Commission almost immediately launched an investigation after Kodak’s stock price soared more than 2,700% and it learned the company’s executive chairman had received 1.75 million Kodak shares just one day prior to the announcement.
The loan was procured through the Defense Production Act.
The Kodak investigation is one of many being conducted by the government in connection with its loan programs.
Sen. Elizabeth Warren wrote to the SEC asking it to look into possible insider trading before the loan was announced.
“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,” she wrote.
A Kodak spokeswoman declined comment for this article, but according to Reuters, a company representative said last week that Executive Chairman Jim Continenza regularly purchases Kodak shares and has done so since joining Kodak in 2013. The representative said the company plans to fully cooperate with the SEC.
The SEC did not answer requests for comment on its investigation.
This is not the only investigation surrounding federal government loans. The Justice Department is investigating numerous businesses and self-employed individuals that applied for Paycheck Protection Program, or PPP loans. The program, part of the government’s COVID-19 relief efforts, has made more than $500 million in loans to over 4.6 million businesses and individuals. More than $100 million is still available.
“In connection with this investigation, Assistant Attorney General Brian Benczkowski, head of the Department of Justice’s criminal division, stated ‘whenever there’s a trillion dollars out on the street that quickly, the fraudsters are going to come out of the woodwork in an attempt to get access to that money.’,” Reuters reported.
SEC investigations are not unusual
The SEC regularly investigates loan dealings. Just this month it announced that as a result of an investigation, World Acceptance Corp., a South Carolina-based consumer loan company, would pay $21.7 million to resolve charges that it violated the Foreign Corrupt Practices Act.
The SEC found the company was paying bribes through its subsidiary in Mexico to secure the ability to make loans to government employees and get repaid in a timely manner.
“WAC Mexico paid the bribes in a variety of ways, including by depositing money into bank accounts linked to the officials and by hiring an intermediary to distribute large bags of cash among the officials,” the SEC said in a statement.”
The SEC also began investigating recipients of the PPP loans in May because some companies were not disclosing obligations related to those loans.
Why the loan to Kodak
The federal government announced the Kodak loan saying it was aimed at reducing U.S. reliance on China for chemical ingredients and finished pharmaceutical products.
“The company plans to establish a new division, Kodak Pharmaceuticals, that will focus on the building blocks used to produce generic drugs, according to a joint statement from Kodak and the lending agency, the U.S. International Development Finance Corporation, or DFC,” The Washington Post reported. The investment is set to create 350 jobs at Kodak’s headquarters in Rochester, NY and in St. Paul, MN.
“DFC normally funds infrastructure and other projects in the developing world. But in an executive order signed in May, President Trump gave DFC new powers under the Defense Production Act to finance domestic health-care manufacturing needed to respond to the coronavirus crisis,” the Post article stated.
Shortages of protective equipment for medical professionals had raised concerns about the U.S. relying on China and India for ingredients and finished medicines. According to the article, about 40 percent of the world’s drug ingredients are used to produce generic medicines for Americans. Only a fraction of those ingredients is manufactured in the U.S.