Earlier, the former film giant Kodak received a $765 million loan from the US federal government to enter the pharmaceutical industry.

In the United States on August 7, the loan was urgently suspended on suspicion of serious "misconduct." On July 28, Kodak released information about obtaining federal government loans, after Kodak board members were granted stock options.

Kodak shares rose 2000% after the news, and these options generated a lot of buoyancy. It is not uncommon for executives to be granted stock options, but some of them were granted on July 27, a day before the loan news was disclosed, which reminded the public.

Currently, the Securities and Exchange Commission (SEC) is investigating that these transactions are suspected of "insider trading".

It involves three major disputes.

According to reports by the Wall Street Journal and Bloomberg, there are three focal points of debate over the whole suspected "insider trading" incident.

Issue 1: whether Kodak has information disclosure violations

In theory, Kodak's federal loan was not disclosed until July 28, but the day before, on July 27, Kodak shares jumped 25%.

Obviously, someone broke the news.

According to the Wall Street Journal, Kodak announced this key information to some media before it publicly announced the loan (July 28), but deleted the news at Kodak's request.

A local media in Rochester, where Kodak is headquartered, said that "Kodak consultants do not restrict the spread of news about loans." Before the lifting of the ban on loan information, they got the relevant press release, but it was not marked "restricted dissemination".

In response, a Kodak spokesman said that the company's internal communication team "does not intend to let the relevant media release the news." At least from the tone of the sentence, the rebuttal is not very powerful.

Issue 2: whether Kodak management uses internal information to buy stocks or options in advance

Oddly enough, the day before the disclosure of Kodak's loan, on July 27, the company's executive chairman, Jim Continenza, was granted 1.75 million share options. According to the Wall Street Journal's press date (August 4), the option is already worth $16 million, of which about 1max 4 is already exercisable.

The remaining options have additional exercise conditions. Kodak issued $100 million in convertible notes a year ago, and the remaining options can be exercised only if all of these notes are converted into stock. However, the information shows that the convertible bill of $100 million has been transferred by 95%.

Exercise means to exercise the right in accordance with the provisions of the option contract. In the case of stock options, exercise allows option holders to buy shares at an agreed price (grant price). Usually this price is very low, for example, the grant price is 2 yuan per share, the current market price is 10 yuan per share, and the holder can make a profit by selling the stock after exercising the right.

In response, Kodak said that Executive Chairman Continenza, as Kodak's largest individual shareholder, did not sell any of the company's shares and did not intend to reduce its holdings in the future. Those so-called stock option returns exist only on paper.

Not only that, a Kodak spokesman further explained, "during his tenure, Mr. Continenza invested more money at Kodak than he earned from the company. "

With regard to the grant of the option to Continenza on July 27, the company said that the move was to protect Mr. Continenza's stake from dilution and that shareholders holding Kodak shares would lose market value if investors converted all convertible notes into shares. On the same day (July 27), the company held the first meeting of the remuneration committee of the board of directors and agreed to grant him stock options. Before that, Kodak had been approved by shareholders to use more shares to make up for the losses of senior executives.

Equity dilution refers to the situation in which the share of the shares held by the current shareholders passively decreases after the company issues additional shares, and the market value of the shares held by the old shareholders shrinks when the stock price remains unchanged.

Jim Continenz and another board member, Phillippe Katz, have been buying Kodak shares in the two months since they negotiated loans with the federal government, according to securities trading disclosures. But to be clear, they were also buying Kodak shares in the second half of last year and this spring, slightly larger than in the past two months.

Issue 3: what is the role of President Trump?

When Kodak disclosed the news of obtaining a federal loan, Trump called it "One of the most important deals in the history of the US pharmaceutical industry」。

But when news broke that SEC was investigating Kodak for alleged insider trading, Trump said at a news conference: "I didn't know.」。

It is well known that one of the drugs Kodak is going to produce in its foray into pharmaceuticals is hydroxychloroquine, a controversial drug strongly recommended by Trump to treat COVID-19. A series of recent studies have shown that the drug has no effect on the virus and may cause severe arrhythmias.

The US news website Daily Beast broke the news even more. Kodak spent 870000 dollars lobbying the government to get loans.

DFC, the lender, told Bloomberg that Kodak was merely signing a "letter of intent".

In addition, there have been constant criticisms from the industry. Analysts from SVB Leerink said, "I am puzzled by this decision of the Trump administration." Why didn't those capable and experienced companies that are already in the pharmaceutical business get loan contracts?

This is not the first time Kodak has entered the pharmaceutical field.

Back in 1988, Kodak bought Sterling Pharmaceuticals for $5.1 billion as a savior. As an American company, Sterling is mainly engaged in diagnostic imaging agents, hormone products and cardiovascular products.

Just six years later, however, Kodak realized that it did not have the ability to produce generic drugs at a low cost, so it spun off Sterling, which it bought at a high price, and focused on medical imaging.

In 2007, Kodak sold its X-ray film and medical imaging business to Toronto investment firm Onex because of "significant investment in the medical imaging business, high cost of all-digital technology and high corporate debt".

Kodak filed for bankruptcy in 2012, and the giant fell.

It was a major strategic mistake to enter the pharmaceutical industry in 1988, which became one of the important inducements to Kodak's bankruptcy. A series of strategic changes and acquisitions, spin-offs have damaged the company's vitality, and more importantly, missed better market opportunities.

In 2020, Kodak entered the pharmaceutical industry again, and before it was formally laid out, it encountered an "insider trading" investigation, which cast a shadow over the future transformation of the company.