As I wrote earlier this week, there’s a major scandal brewing in this deal. Everything about it looks fishy:
While Trump has refused to heed calls to invoke the Defense Production Act for the manufacture of PPE and COVID-19 testing supplies, he suddenly gifted Kodak, the camera people, with a $765M loan for a not-yet established division to start producing ingredients for pharmaceuticals.
The Washington Post notes that the lender, U.S. International Development Finance Corporation, or 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.”
Coincidentally, it was also in May that Kodak shareholders authorized CEO James Continenza 1.75 million in stock options. But he wasn’t granted the options until July 27, the day before the deal was announced.
Eastman Kodak's stock price went up over 1000 percent this week.
Thanks to some great reporting by Judd Legum in his Popular Information newsletter, we now know about the stock options as well as Continenza’s previous big purchase of stock in June, when negotiations with the federal government were already in progress. Other top executives at Kodak got some nice options, too. "These options are now worth tens of millions of dollars," Legum said.
Furthermore, Kodak’s explanation for the suspicious timing of the options is “complex but not very convincing,” Legum points out.
Kodak, in an amendment filed July 30, attempted to claim that Continenza's grant was issued to prevent dilution in his stock holding should a convertible note due in 2021 convert to equity. A convertible note gives a lender the option of taking equity in the company. This is something that is very likely to happen now that Kodak is significantly more valuable.
But why did the company protect Continenza over its other shareholders? And why issue the options the day before the deal with the government? And why were stock options issued to the other executives? Like I said, it's fishy.
But wait, there’s more. “[W]hile the options were awarded on July 27, they weren't disclosed until after 7 PM on July 29,” Legum notes. That means that when Continenza appeared on CNBC on the morning of July 29, host Joe Kernen knew nothing about the options when he asked Continenza about the massive increase in Kodak’s stock trading on July 27. Yet Continenza’s, “I couldn’t tell you what influenced that or didn’t,” looks like a big lie. (Part of the increase may have been due to a careless leak by Kodak.)
Then there’s the hydroxychloroquine angle. Legum has more on that, too.
The deal with Kodak was brokered by White House trade advisor Peter Navarro. In recent days, Navarro has openly feuded with Anthony Fauci, the nation's leading infectious disease expert. Navarro wrote an op-ed for USA Today with the title, "Anthony Fauci has been wrong about everything I have interacted with him on."
One of Navarro's chief complaints is that Fauci was insufficiently supportive of using hydroxychloroquine, an anti-malarial drug, to treat or prevent COVID-19. The deal with Kodak appears to be a way for Navarro to continue to push hydroxychloroquine. As part of the deal, Kodak will reportedly manufacture chemicals that will allow more hydroxychloroquine to be produced domestically.
But as Today reported, numerous clinical trials have failed to show hydroxychloroquine effective against COVID-19, the FDA has revoked its emergency use authorization and leading infectious disease experts, doctors and virologists say it’s time to stop promoting it as a treatment.
Also noteworthy is that Kodak was a big sponsor of Trump’s Celebrity Apprentice show.
So what’s in this for Trump? Did he shell out all those taxpayer dollars just to reward an old buddy? To own the hydroxychloroquine doubters? To go along with Navarro? Whether any or all of those are factors, I'll bet he and/or his family are making money somewhere, too.
