Kodak's $765 Million Federal Loan Held Up Over 'Serious Concerns'

Board members bought stock before the announcement Kodak would be using U.S. money to manufacture drugs, including Trump-touted hydroxychloroquine.

A massive $765 million federal government loan to help Eastman Kodak Co. retool to speed production of ingredients for COVID-19 drugs — including controversial hydroxychloroquine — has been held up over “serious concerns” following allegations of “wrongdoing,” a federal agency announced.

“Recent allegations of wrongdoing raise serious concerns,” the U.S. International Development Finance Corporation said in a tweet late Friday of the company that once dominated the camera and film industry. “We will not proceed any further unless these allegations are cleared.”

The Securities and Exchange Commission is already investigating the deal. Kodak’s board also said Friday that it’s launching a review of the loan, Bloomberg reported.

The Wall Street Journal first reported Tuesday that the SEC was investigating Kodak stock purchases by company board members and stock options granted to them before the deal was announced July 28. Company shares jumped more than 2,000% in the days after the deal was reported, according to Bloomberg.

Sen. Elizabeth Warren (D-Mass.) called for an SEC investigation into potential insider trading concerning options the day before the deal was announced. In her letter to SEC Chair Jay Clayton, she also asked the commission to examine purchases in June of “substantial amounts of company stock” by Kodak CEO James Continenza and another board member “at a time when Kodak and the Trump administration were negotiating the deal in secret.”

The development bank loan was the first of its kind under the Defense Production Act in collaboration with the U.S. Department of Defense. When President Donald Trump announced the massive loan, he called the arrangement “one of the most important deals in the history of U.S. pharmaceutical industries.” But after news broke of an SEC review of Kodak stock trading, Trump said of the deal at a news conference: “I wasn’t involved in it.”

The money was intended to transform Kodak into a pharmaceutical operation to produce ingredients for drugs in short supply — including those to treat COVID-19.

According to the Journal, one of those drugs was to be hydroxychloroquine, the controversial anti-malarial drug frequently pitched by Trump. A number of recent studies have shown the drug is ineffective in treating COVID-19 and can cause fatal heart arrhythmia.

Kodak nailed the massive loan after spending a company record $870,000 lobbying lawmakers and officials in the Trump administration, The Daily Beast reported Wednesday

Despite the hype surrounding the Kodak loan, the DFC told Bloomberg that it had only signed a “letter of interest” regarding work with the company. Critics raised concerns about Kodak’s ability to run a massive pharmaceutical operation.

“We are puzzled by the Trump Administration’s decision,” analysts at SVB Leerink wrote in a research note, Bloomberg reported. “In particular, we find it puzzling why generic pharmaceutical companies who have the capabilities and know-how for this have not yet been awarded such contracts.”

The DFC tweeted after its Kodak message Friday that it was “committed” to working with other government agencies to address pharmaceutical manufacturing shortfalls.

Kodak could not immediately be reached for comment.

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