Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 1 of 26
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`
`
`Civil Action No.: 20-cv-6861
`
`CLASS ACTION COMPLAINT
`FOR VIOLATIONS OF
`FEDERAL SECURITIES LAWS
`
`JURY TRIAL DEMANDED
`
`
`JIMMIE A. MCADAMS AND JUDY P.
`MCADAMS, Individually and on Behalf of All
`Others Similarly Situated,
`
`
`Plaintiffs,
`
`
`
`v.
`
`EASTMAN KODAK COMPANY and JAMES V.
`CONTINENZA,
`
`Defendants.
`
`
`
`
`
`Plaintiffs Jimmie A. McAdams and Judy P. McAdams (“Plaintiffs”), by their attorneys, on
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`behalf of themselves and all others similarly situated, allege the following based upon the
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`investigation of Plaintiffs’ counsel, except as to allegations specifically pertaining to Plaintiffs,
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`which are based on personal knowledge. The investigation of counsel included, among other
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`things, a review of Eastman Kodak Company (“Kodak or the “Company”) public filings with the
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`U.S. Securities and Exchange Commission (“SEC”), press releases issued by the Company, media,
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`news and analyst reports about the Company, conference calls with Company executives and
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`investors, and other publicly available data, including, but not limited to, publicly available trading
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`data relating to the price and trading volume of Kodak securities.
`
`I.
`
`INTRODUCTION
`
`1.
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`This action is a securities fraud action brought under Sections 10(b) and 20(a) of
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`the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated
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`thereunder by the SEC, brought by Plaintiff on behalf of all persons and entities who purchased or
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`sold the publicly traded securities of Kodak from July 27, 2020 through August 11, 2020 inclusive,
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`and were damaged thereby.
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`1
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 2 of 26
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`2.
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`Kodak, a company known for its historic basis in photography, emerged from
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`bankruptcy on September 3, 2013. As of the filing of its annual report on Form 10-K on March
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`17, 2020, the Company purported to be a global technology company focused on print and
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`advanced materials and chemicals, providing hardware, software, consumables and services
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`primarily to customers in commercial print, packaging, publishing, manufacturing and
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`entertainment.
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`3.
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`On July 27, 2020 according to The Wall Street Journal, Kodak released information
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`to local reporters in Rochester, New York with no embargo time on the news advisory regarding
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`a new manufacturing initiative that “could change the course of history for Rochester and the
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`American people.” Several outlets reportedly published related stories and then deleted them upon
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`Kodak’s request.
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`4.
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`On July 27, 2020, Kodak’s shares increased in price by nearly 25% on unusually
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`heavy trading volume of over 1.645 million shares to close at $2.62 per share.
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`5.
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`Also, on July 27, 2020, unknown to investors, Kodak granted its Executive
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`Chairman, James V. Continenza (“Continenza” or “Defendant Continenza”), 1.75 million stock
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`options at a conversion price of between $3.03 and $12 per share. Additionally, the Company
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`awarded 45,000 stock options each to its Chief Financial Officer, David Bullwinkle, Vice
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`President Randy Vandagriff, and General Counsel Roger Byrd.
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`6.
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`On July 28, 2020, before the market opened, the Company announced that it was
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`selected to receive a $765 million transformative loan from the U.S. International Development
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`Finance Corporation (“DFC”) under the Defense Production Act to produce pharmaceutical
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`materials, including ingredients for COVID-19 drugs (the “$765 million DFC Loan” or “Loan”).
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`The Company’s announcement was part of a joint press release with the DFC, which stated in
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`pertinent part that “Kodak is expanding its traditional product line to support the national response
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`2
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 3 of 26
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`to COVID-19 by bolstering domestic production and supply chains of key strategic resources” and
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`“DFC’s loan will accelerate Kodak’s time to market by supporting startup costs needed to
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`repurpose and expand the company’s existing facilities in Rochester, New York and St. Paul,
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`Minnesota, including by incorporating continuous manufacturing and advanced technology
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`capabilities.” These statements and others made by the Defendants represented to investors that
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`the $765 million Loan from the government was a done deal.
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`7.
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`In reaction to the July 28, 2020 news that Kodak was forming a new business unit
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`to produce essential pharmaceutical components funded by the $765 million DFC loan, Kodak’s
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`shares soared, reaching an intra-day high of $11.80 per share, 350% higher than the closing price
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`the prior trading day, and closed at $7.94 per share on unusually heavy trading volume of over 284
`
`million shares, about 203% higher than the closing price of $2.62 per share on July 27, 2020.
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`8.
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`9.
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`Later, after the market closed, shares continued to rise in extended trading.
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`Then, on July 29, 2020 before the market opened, Defendant Continenza was
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`interviewed on CNBC’s Squawk Box during which he touted the loan and the Company’s shift to
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`producing the ingredients for COVID-19 drugs. Among other things, Defendant Continenza stated
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`that he was “very comfortable that we can bank on [the Loan],” that Kodak’s new business unit
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`based on the $765 million DFC Loan would be profitable, that the Loan had been a “tight-kept
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`secret” up until July 28, 2020, and that he had no explanation for the surge in trading volume from
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`about 74,000 on Friday, July 24, 2020 to more than 1.64 million on Monday, July 27, 2020.
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`10.
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`In reaction to Defendant Continenza’s July 29, 2020 statements touting the Loan
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`and the fact that investors can “bank on it,” Kodak’s shares skyrocketed further, reaching an intra-
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`day high of $60 per share on July 29, 2020 on unusually heavy trading volume of over 276 million
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`shares, and closed up $25.26 per share at $33.20 per share, 318% greater than the closing price of
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`$7.94 per share on July 28, 2020.
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`3
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`11.
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`The extraordinary stock price increase over two days of more than 1000%, allowed
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`Continenza and other Kodak insiders to enrich themselves. Defendant Continenza’s newly granted
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`options alone increased from zero to more than $50 million over just a few days.
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`12.
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`However, after the market closed on July 29, 2020, the truth started to come to light
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`through a series of partial revelations starting with the publication of an article by The Wall Street
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`Journal reporting that Kodak had leaked news of the $765 million DFC Loan to certain media
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`outlets on July 27, 2020, after which the Company sought to cover up its mistake by secretly
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`attempting to retract those stories. Following the after-market July 29 news, Kodak’s stock price
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`declined more than 10% during trading on July 30, 2020 and then declined by approximately 27%
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`on July 31, 2020 to close at $21.85 per share.
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`13.
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`Following reports over the weekend of August 1-2, 2020, that Defendant
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`Continenza had secretly been granted 1.75 million options on July 27, 2020, just prior to the
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`announcement of the loan, Kodak’s stock price fell 31.6% to close at $14.94 per share on August
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`3, 2020.
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`14.
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`On August 4, 2020, reports emerged that Senator Elizabeth Warren (“Senator
`
`Warren”) had sent a letter dated August 3, 2020 requesting that U.S. regulators examine possible
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`insider trading prior to Kodak’s July 28, 2020 announcement of the $765 million DFC Loan.
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`Senator Warren’s letter to the Securities and Exchange Commission (“SEC”) noted that on July
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`23, 2020, Defendant Continenza purchased 46,737 shares and board member Philippe Katz
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`purchased 5,000 shares—stock trades that “raise questions about several different insider trading
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`laws.” According to the letter, “[t]he purchase of stock by Mr. Continenza and Mr. Katz while the
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`company was involved in secret negotiations with the government over a lucrative contract raises
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`questions about whether these executives potentially made investment decisions based on material,
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`non-public information derived from their positions,” and potentially violates the Exchange Act.
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`4
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 5 of 26
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`Additionally, the letter pointed to the Company’s initial July 27, 2020 announcement of the deal
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`to some media outlets, followed by the subsequent frenzy in trading of its shares—a one-day
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`volume of over 1.645 million shares, compared to average trading volume of 236,479 per day over
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`the last year.
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`15.
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`On August 4, 2020, reports also circulated that the SEC was already investigating
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`Kodak’s loan disclosure and the corresponding stock surge.
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`16.
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`Additionally, on August 4, 2020, Kodak Board member George Karfunkel
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`(“Karfunkel”) and his wife disclosed in an SEC filing that they had made a July 29, 2020 donation
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`of 3 million of their 6.3 million Kodak shares to a religious institution in Brooklyn, New York,
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`that Karfunkel reportedly founded and controlled, a gift reportedly valued at $116.3 million using
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`the average of the stock’s high and low that day of $38.75 per share. Notably, this “charitable”
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`donation took place the day Kodak’s stock peaked at $60 per share, and was provided to a
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`congregation that reportedly has only been incorporated since 2018, used a Brooklyn accountant’s
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`office as its mailing address, had no website, and for which Karfunkel himself reportedly served
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`as the President—one of only three officers of the purported charity. The Wall Street Journal later
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`reported that, while the organization described itself as an Orthodox Jewish synagogue, in fact it
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`only appeared to have “a small space attached to a three-story apartment building on a quiet side
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`street.” The article also reported that the donation represented the single largest gift recorded to a
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`religious group, and would generate tens of millions of dollars in income-tax benefits for
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`Karfunkel. Karfunkel’s gift is now the subject of an internal review by the Company’s outside
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`counsel.
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`17.
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`Following the August 4, 2020 news, Kodak’s shares fell 3.6% to close at $14.40
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`per share.
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 6 of 26
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`18.
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`On August 5, 2020, several Congressional committees sent a joint letter to
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`Defendant Continenza seeking documents about the Loan, insider trading, and stock options for
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`their review of “DFC’s decision to award this loan to Kodak despite your company’s lack of
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`pharmaceutical experience and the windfall gained by you and other company executives as a
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`result of this loan” which raised “questions that must be thoroughly examined.”
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`19.
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`On August 7, 2020, before the market opened, Kodak announced that its Board had
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`opened an internal review of the disclosure of the $765 million DFC loan, after which Kodak’s
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`shares fell 7.6% to close at $14.88 per share on August 7, 2020.
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`20.
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`Also on August 7, 2020, after the market closed, the DFC issued a tweet indicating
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`that the $765 million Loan to Kodak had been put on hold in light of the allegations of wrongdoing.
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`On August 10, 2020, the first trading day following the news, Kodak’s shares fell by $4.15 per
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`share, nearly 28%, to close at $10.73 per share. Kodak’s shares continued to decline the next
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`trading day, falling by 6.7% to close at $10.01 per share on August 11, 2020.
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`21.
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`Then, on August 11, 2020, after the market closed, in connection with the
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`Company’s release of its financial results for the second quarter, Kodak held a conference call
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`during which Defendant Continenza repeatedly referred to the Loan as a “potential loan”, in stark
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`contrast to his statements on July 29, 2020 that the Loan was effectively a done deal. Additionally,
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`Defendant Continenza said that “we … support the DFC's decision to wait clarification before
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`moving forward with the loan process.” Following this news, Kodak’s shares declined farther by
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`an additional 2.9% to close at $9.72 per share on August 12, 2020.
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`22.
`
`As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
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`in the market value of the Company’s securities, Plaintiff and other Class members have suffered
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`significant losses and damages.
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`6
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 7 of 26
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`II.
`
`INTRODUCTION
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`23.
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`The claims asserted arise under Sections 10(b) and 20(a) of the Exchange Act, 15
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`U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
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`Jurisdiction is conferred by Section 27 of the Exchange Act.
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`24.
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`Venue is proper in this Judicial District pursuant to Section 28 U.S.C. § 1391(b)
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`and 27 of the Exchange Act. Kodak’s common stock trades on the New York Stock Exchange
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`(“NYSE”), a national securities exchange, that is located in this District.
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`25.
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`In connection with the facts and omissions alleged in this complaint, Defendants,
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`directly or indirectly, used the means and instrumentalities of interstate commerce, including, but
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`not limited to, the mails, interstate telephone communications, and the facilities of the national
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`securities markets.
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`III.
`
`PARTIES
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`26.
`
`Plaintiff purchased Kodak securities as detailed in the certification attached hereto
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`and was damaged thereby.
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`27.
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`Defendant Kodak is incorporated in New Jersey, and the Company’s principal
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`executive offices are located at 343 State Street, Rochester, New York. Kodak’s common stock
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`trades on the New York Stock Exchange under the symbol “KODK.”
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`28.
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`Defendant Continenza served at all relevant times as the Company’s Executive
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`Chairman.
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`29.
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`Defendants Kodak and Continenza are collectively referred to as “Defendants”.
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`IV. CLASS ACTION ALLEGATIONS
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`30.
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`Plaintiff brings this action as a class action pursuant to Federal Rules of Civil
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`Procedure 23(a) and 23(b)(3) on behalf of a class of all persons and entities who purchased or sold
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 8 of 26
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`the publicly traded securities of Kodak from July 27, 2020 through August 11, 2020, inclusive (the
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`“Class Period”), and were damaged thereby.
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`31.
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`The members of the Class are so numerous that joinder of all members is
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`impracticable. While the exact number of Class members is unknown to Plaintiff at the present
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`time and can only be ascertained through appropriate discovery, Plaintiff believes that there are
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`thousands of members of the Class located throughout the United States. As of March 2, 2020,
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`Kodak had 43,578,870 shares of common stock outstanding.
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`32.
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`There is a well-defined community of interest in the questions of law and fact
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`involved in this case. Questions of law and fact common to the members of the Class that
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`predominate over questions that may affect individual Class members include:
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`(a)
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`whether Defendants violated the federal securities laws;
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`(b)
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`whether Defendants’ statements omitted and/or misrepresented material
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`facts;
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`(c)
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`whether the prices of Kodak securities were artificially inflated; and
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`(d)
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`the extent of damage sustained by Class members and the appropriate
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`measure of damages.
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`33.
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`Plaintiff’s claims are typical of the claims of the members of the Class. Plaintiff
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`and all members of the Class have sustained damages because of Defendants’ unlawful activities
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`alleged herein. Plaintiff has retained counsel competent and experienced in class and securities
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`litigation and intends to pursue this action vigorously. The interests of the Class will be fairly and
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`adequately protected by Plaintiff. Plaintiff has no interests which are contrary to or in conflict
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`with those of the Class that Plaintiff seeks to represent.
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 9 of 26
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`34.
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`A class action is superior to other available methods for the fair and efficient
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`adjudication of this controversy. Plaintiff knows of no difficulty to be encountered in the
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`management of this action that would preclude its maintenance as a class action.
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`V.
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`FALSE AND MISLEADING STATEMENTS
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`35.
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`On July 27, 2020, according to The Wall Street Journal, Kodak released
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`information to local reporters in Rochester, New York with no embargo time on the news advisory.
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`Further, according to The Wall Street Journal, the story was published at 12:12 p.m. eastern time
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`and in the now removed story, a Kodak spokesperson was quoted as saying the initiative “could
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`change the course of history for Rochester and the American people.”
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`36.
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`On July 27, 2020, the price of Kodak’s shares increased by $0.52 per share, nearly
`
`25%, to close at $2.62 per share on unusually heavy trading volume of 1.645 million shares.
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`37.
`
`On July 28, 2020, before the market opened, Dow Jones published an article
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`reporting that Kodak had won a $765 million government loan under the Defense Production Act
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`to help expedite domestic production of drugs, including hydroxy chloroquine that President
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`Trump has touted for the treatment of coronavirus. The Dow Jones article quoted Kodak’s
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`Executive Chairman, Defendant Continenza, as stating that Kodak will produce “starter materials”
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`and “active pharmaceutical ingredients” used to produce generic medicines. Additionally, the
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`article reported that “Mr. Continenza said he expects the loan to create around 300 jobs in
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`Rochester, and 30 to 50 in Minnesota” further conveying to the market that the loan had been
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`secured by the Company.
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`38.
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`Additionally, on July 28, 2020, Kodak and the DFC issued a joint statement before
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`the market opened confirming the deal to lend Kodak $765 million, thereby transforming Kodak’s
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`business.
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 10 of 26
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`ROCHESTER, New York – At the direction of President Donald J. Trump, U.S.
`International Development Finance Corporation (DFC) Chief Executive Officer
`Adam Boehler will today sign a letter of interest (LOI) to provide a $765 million
`loan to Eastman Kodak Company (Kodak) to support the launch of Kodak
`Pharmaceuticals, a new arm of the company that will produce critical
`pharmaceutical components. The project would mark the first use of new
`authority delegated by President Trump’s recent executive order that enables DFC
`and the U.S. Department of Defense (DOD) to collaborate in support of the
`domestic response to COVID-19 under the Defense Production Act (DPA).
`
`
`"Addressing the unprecedented challenges we face today—and preparing
`for future crises—requires innovative ideas and partnerships,” said Boehler.
`“Today, we are bringing together the significant resources and expertise of
`the private sector and U.S. Government. We are pleased to support Kodak
`in this bold new venture. Our collaboration with this iconic American
`company will promote health and safety at home and around the world.”
`
`“Kodak is proud to be a part of strengthening America’s self-sufficiency in
`producing the key pharmaceutical ingredients we need to keep our citizens
`safe,” said Kodak Executive Chairman Jim Continenza. “By leveraging our
`vast infrastructure, deep expertise in chemicals manufacturing, and heritage
`of innovation and quality, Kodak will play a critical role in the return of a
`reliable American pharmaceutical supply chain.”
`
`“If we have learned anything from the global pandemic, it is that Americans
`are dangerously dependent on foreign supply chains for their essential
`medicines,” said Assistant to the President and Director of the Office of
`Trade and Manufacturing Policy at
`the White House Dr. Peter
`Navarro. “This DFC-Kodak partnership is a big win for the use of President
`Trump’s DPA powers, a big win for New York, and a huge step forward
`towards American pharmaceutical independence.” "This is about assuring
`our supply chains now and in the future,” said Rear Admiral John
`Polowczyk, White House Supply Chain Task Force Lead. “Kodak is
`stepping up to help onshore pharmaceutical production and this DPA action
`will allow the modernized Strategic National Stockpile to have domestic
`resiliency. Once Kodak ramps up we will have the ability to tap into that
`capacity for domestic use."
`
`
`Boehler and Continenza will sign the LOI and be joined by Navarro, Polowczyk,
`and Deputy Secretary of Defense David Norquist. The signing ceremony will
`follow recorded remarks from President Trump and New York Governor Andrew
`Cuomo.
`
`Since George Eastman put the first simple camera into the hands of consumers in
`1888, Rochester, New York-based Kodak has become a globally recognized
`American brand that has helped lead the innovation of the graphic communications
`industry. Today, Kodak is expanding its traditional product line to support the
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 11 of 26
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`national response to COVID-19 by bolstering domestic production and supply
`chains of key strategic resources.
`
`Kodak Pharmaceuticals will produce critical pharmaceutical components that
`have been identified as essential but have lapsed into chronic national shortage,
`as defined by the Food and Drug Administration (FDA). Although Americans
`consume approximately 40 percent of the world’s supply of bulk components used
`to produce generic pharmaceutics, only 10 percent of these materials are
`manufactured in the United States. [Emphasis added.]
`
`DFC’s loan will accelerate Kodak’s time to market by supporting startup costs
`needed to repurpose and expand the company’s existing facilities in Rochester,
`New York and St. Paul, Minnesota, including by incorporating continuous
`manufacturing and advanced technology capabilities. The LOI that will be signed
`today indicates Kodak’s successful completion of DFC’s initial screening and will
`be followed by standard due diligence conducted by the agency before financing is
`formally committed.
`
`Once fully operational, Kodak Pharmaceuticals will have the capacity to produce
`up to 25 percent of active pharmaceutical ingredients used in non-biologic, non-
`antibacterial, generic pharmaceuticals while supporting 360 direct jobs and an
`additional 1,200 indirectly. The company plans to coordinate closely with the
`Administration and pharmaceutical manufacturers to identify and prioritize
`components that are most critical to the American people and U.S. national security.
`
`39.
`
`In reaction to the July 28, 2020 news, Kodak’s shares soared, reaching an intra-day
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`high of $11.80 per share, and closed at $7.94 per share, about 203% higher than the closing price
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`of $2.62 per share on July 27, 2020.
`
`40.
`
`Then, on July 29, 2020 before the market opened, Defendant Continenza was
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`interviewed by Joe Kernan on CNBC’s Squawk Box touting the Loan and the Company’s shift to
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`producing the ingredients for COVID-19 drugs. Excerpts from the interview follow.
`
`
`
`Kernan: . . . Is this a done deal? There are some people are saying the government
`has gotta do some due diligence or this part of this agency of the government that
`is providing the loan. Do you expect this, do you think we can bank on this James
`because we had quite a move in the stock yesterday?
`
`Continenza: Well, we feel very comfortable that we can bank on it. We’re we
`have some work to do but we wouldn’t have probably made the announcement, and
`everyone come up and do what we did yesterday. We had Dr. Navarro, we had you
`know Adam there who is the CEO of the DFC. We also had Rear Admiral
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 12 of 26
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`Polowczyk, so we feel very comfortable we’re gonna get to the end game. We
`signed a letter of interest, but we’ve been working on this for a few months. We
`feel very comfortable we’re gonna get to the end game or we probably wouldn’t
`be probably sitting here. [Emphasis added.]
`
`
`* * *
`
`Kernan: We have seen a move in the stock and we just saw today that is just
`absolutely staggering. We are in this environment where things like this have
`happened with some other names. I do have a question of about whether you can
`lend any insight into this. I mean the volume is very average, was very average in
`Kodak on last Friday 74,000, last Thursday 80,000, last Wednesday 52,000. On
`Monday, 1.648 million shares. And then Tuesday the news came out. How do you
`account for that James? Any idea whether whether someone had wind of this? I
`mean we didn’t see a move in the stock until Tuesday but that is so far and away at
`the multiple of the daily average of volume over the last…over a long period of
`time. Any idea whether this got out? [Emphasis added.]
`
`Continenza: I I don’t know. I mean obviously, this has been a pretty tight-kept
`secret obviously even in to the last day basically so uhm… I couldn’t tell you what
`influenced that or didn’t. [Emphasis added.]
`
`Kernan: I don’t know if it was a well-kept, it doesn’t look like it was a well-kept
`secret. (laughter from both parties) that, that
`
`
`
`
`
`Continenza:
`Well, we knew for over a week.
`
`41.
`
`In reaction to Defendant Continenza’s July 29, 2020 statements touting the
`
`certainty of the Loan, Kodak’s shares skyrocketed to an intra-day high of $60 per share and closed
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`at $33.20 per share, $25.26 per share higher and more than 318% greater than the closing price of
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`$7.94 per share on July 28, 2020.
`
`42.
`
`Defendants’ statements in paragraphs 35-41 were materially false and/or
`
`misleading, and failed to disclose that (1) prior to the formal announcement of the Loan and during
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`what should have been a black-out period for insider stock activity, Defendant Continenza was
`
`granted 1.75 million options and other insiders were engaging in suspiciously-timed transactions
`
`based on material non-public information, (2) the Defendants had improperly leaked the
`
`information to the market on July 27, 2020 before the official announcement and actively engaged
`
`12
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 13 of 26
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`in a cover-up scheme, 3) the status and likelihood of the $765 million DFC Loan was
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`misrepresented to the market for many reasons, particularly given the Company’s wrongful
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`behavior in terms of secretly granting options to Defendant Continenza and other insider
`
`transactions while in possession of material non-public information, as well as improperly leaking
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`the news and engaging in a cover up scheme of these facts, and (4) as a result of the foregoing,
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`Defendants’ statements about Kodak’s business, operations, and prospects, were materially false
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`and/or misleading and/or lacked a reasonable basis.
`
`VI.
`
`THE TRUTH BEGINS TO EMERGE
`
`43.
`
`On July 29, 2020 after the market closed the first news suggesting wrongdoing by
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`Kodak in connection with its disclosure of the government loan began to emerge when The Wall
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`Street Journal published an article entitled “Tweets and Articles Sent Kodak Shares Surging
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`Before Official Announcement.” The article stated that “Kodak sent a news advisory to media
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`outlets without indicating the information wasn’t intended to be released publicly,” reporting that
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`Kodak had shared information about an agreement between the company and the Trump
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`administration with media outlets before the announcement on July 28, 2020. Some media
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`companies reportedly published that information before deleting it following a request from the
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`company. Specifically, The Wall Street Journal article stated in pertinent part as follows:
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`“[L]ess than a day before the announcement, the stock was already moving higher
`on heavy volume. More than 1.6 million shares of Kodak were traded on Monday,
`a big jump from an average daily volume of 231,000 shares a day during the
`previous 30 trading days. The stock price gained 25% that day.
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`The early activity was suspicious to some traders. It came well ahead of the
`announcement the next day. But some market observers know why the Kodak stock
`moved early: tweets and news stories from television stations in Kodak’s
`hometown of Rochester, N.Y. Some of those tweets and stories were quickly
`deleted.
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`Just after noon on Monday, two news reporters in Rochester tweeted information
`about a Kodak initiative with the government in response to the coronavirus
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 14 of 26
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`pandemic. One reporter has since deleted the tweet, the other has kept it up. The
`tweet that remains up has a time stamp of 12:05 p.m. ET.
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`At about the same time, news stories were posted on the websites of the ABC and
`CBS affiliates in Rochester. The news stories were initially published on Monday
`after Kodak sent an advisory to media outlets about the initiative, according to
`Chuck Samuels, general manager of the ABC affiliate. The advisory didn’t indicate
`that the information wasn’t supposed to be released publicly, he said.
`
` A
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` copy of it reviewed by The Wall Street Journal confirmed there was no embargo
`time on the news advisory.
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`The CBS affiliate’s story was published at 12:12 p.m. ET. In the now removed
`story, a Kodak spokesperson was quoted as saying the initiative “could change the
`course of history for Rochester and the American people,” according to a copy of
`the article reviewed by The Wall Street Journal that was collected by Meltwater, a
`global media intelligence company.
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`Both stories were then removed from their respective websites after Kodak told the
`stations that the information was for “background only” and not for publication.
`
` A
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` representative for the CBS affiliate declined to comment.
`
` A
`
` Kodak spokesman said the company sent the advisory to journalists in Rochester
`on Monday morning. The spokesman confirmed the company asked the reporters
`to remove the information after they posted it.
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`Following the tweets and news stories, activity in Kodak’s stock spiked, trading
`data shows. In the hour from 12:30 to 1:30 p.m. ET on Monday, Kodak trading
`volume surged, and the price of its shares rose from $2.22 to $2.41, a jump of more
`than 8%.
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`Trading in Kodak options also surged on Monday, rising to about 20 times normal
`levels, with a noticeable spike just before 1 p.m. ET, according to Henry Schwartz,
`founder of data provider Trade Alert. There was more than three times as much
`volume in Kodak call options, which can be used to place bullish bets on the
`company’s stock, than in bearish put options, he added.
`
`44.
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`On July 30, 2020, the first trading day following this news, Kodak’s shares fell by
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`$3.37 per share, more than 10%, to close at $29.83 per share. Shares declined an additional $7.98
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`per share, nearly 27%, the next trading day to close at $21.85 per share on July 31, 2020.
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`45.
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`Then, over the weekend of August 1-2, 2020, Reuters and other news sources
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`reported that Defendant Continenza was granted options for 1.75 million shares on July 27, 2020
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`Case 1:20-cv-06861-JGK Document 1 Filed 08/26/20 Page 15 of 26
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`based on an informal and non-binding "understanding" with the Company’s board. These facts
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`continued to be widely circulated on Monday August 3, 2020.
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`46.
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`On the first trading day following this news, Kodak’s shares fell $6.91 per share,
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`or 31.6%, to close at $14.94 per share on August 3, 2020.
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`47.
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`Then, on the morning of August 4, 2020, multiple news sources reported that
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`Senator Warren had asked U.S. regulators to examine possible insider trading prior to Kodak’s
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`July 28, 2020 announcement of the $765 million DFC Loan, as well as potential disclosure
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`violations involving Kodak after the Company’s shares soared when it announced a surprise foray
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`into generic drugs with help from the $765 million DFC Loan. At the same time, news circulated
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`on the morning of August 4, that Kodak’s disclosure of the Loan and the stock surge were already
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`under examination by the SEC.
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`48.
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`Later that day, The Wall Street Journal published an article confirming the rumors
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`of the SEC probe and also again reported that news about the Loan had been leaked on July 27,
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`contrary to Defendant Continenza’s assertions on July 29, 2020 that it had been kept a “tight-kept
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`secret.” Among other things, The Wall Street Journal article stated as follows:
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`The Securities and Exchange Commission is investigating the circumstances
`around Eastman Kodak Co. ’s announcement of a $765 million government loan to
`make drugs at its U.S. factories, according to people familiar with