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Watchdog for U.S. Agency That Brokered Controversial Kodak Loan Deal Finds No Wrongdoing

The cloud of controversy over Kodak’s nixed government loan starts to lift.
(JHVEPhoto)
(JHVEPhoto)
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“A government watchdog agency found no wrongdoing in the process that created a now-halted U.S. loan to Eastman Kodak Co. to produce drug ingredients for the Covid-19 response,” WSJ writes.

A Quick Refresher: In July, the U.S. International Development Finance Corp. was set to broker a $765 million government loan for Kodak, under the Defense Production Act, to produce generic drug ingredients, such as the antimalarial drug hydroxychloroquine (the drug’s efficacy in treating Covid-19 has been debated). But the deal quickly sputtered after Kodak mishandled the release of the information to the public, sending its stock “on a rollercoaster.”

  • The SEC would launch an investigation shortly after that, with the DFC and Kodak following their probes.

The DFC’s investigation cleared the government agency’s role in the deal, finding it was “reasonable” to consider Kodak for the loan given similar Covid-19 pivots and its experience supplying the pharmaceutical industry.

Kodak followed with its own investigation, which found it didn’t break any laws regarding the loan disclosure. But it did reveal “several governance issues at play.”

  • A Kodak board member gifted $116 million in Kodak stock to a religious charity he started on the day the stock peaked when the loan news went public.
  • The company also admitted five former executives were able to unload stock options they didn’t own and collect millions due to weak internal controls.
  • Kodak is trying to recover roughly $7 million between the fair value of shares and tax withholdings from employees.

Meanwhile, the DFC has pivoted to a new coronavirus loan partner: “Last month, the agency said it approved a $590 million loan to ApiJect Systems Corp. to produce prefilled injectors for vaccines. The Food and Drug Administration hasn’t approved the devices for distribution though the company has been in discussions with the FDA.”

Justin Oh:

Kodak ($KODK) was a meme stock from the very beginning without real visibility to higher future cash flows. Now Kodak is cleared from wrongdoing, its stock is trading 5x higher than before all this loan drama, but the company still doesn’t know if it will get the loan.

The company has said that “as part of our long term strategy, we will continue to move forward with expanding the existing pharmaceutical business regardless of whether we received the potential DFC loan.”

This one continues to be a hype stock with no rationale behind why you would own it. So as investors, it remains one we’ll pass on.

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