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Trump’s perfect storm of a Kodak deal is gaining new control

By on March 11, 2021 0

It was a “Kodak moment” that Wall Street and Washington won’t need a snapshot to remember.

When news broke last week that the Trump administration was lining up a $ 765 million loan to the ill-fated company, once synonymous with photography, Kodak stock skyrocketed from just over $ 2 each to $ 60. dollars each before stabilizing.

The company’s chief executive and a small group of insiders have made hundreds of millions of dollars on paper, and possibly in cash in some cases, according to filings with the Securities and Exchange Commission and news.

This has required a disturbing chain of events starting with investors acquiring millions of low-value shares in a troubled company, the Trump administration reversing the purpose of a foreign development law, and shareholders riding a tide more. ample of market excitement for the government regained interest in Kodak to discover new riches.

“This loan appears to be a highly questionable use of public money and raises questions about self-treatment and insider trading,” Bharat Ramamurti, a member of the Congressional COVID-19 Supervisory Commission, told NBC News.

Senator Elizabeth Warren, D-Mass., Asked Tuesday for the SEC to investigate whether the shares of certain investors constituted illegal insider trading and The Wall Street Journal reported it that the regulator is really taking a look.

On the surface, the Trump administration has found a creative way to help a struggling large US manufacturer in a hard-hit city – Rochester, New York – potentially providing capital for the transition to manufacturing chemicals for pharmaceuticals. But the stock increase was based only on a letter of intent – not an actual loan – from a new and little-known government agency called the US Development Finance Corporation, set up to provide foreign aid and run by White House senior adviser Jared. Kushner. former roommate Adam Boehler.

Boehler has no concerns about the stock transactions surrounding the deal, DFC spokeswoman Laura Allen said in response to a series of emailed questions.

“As a public company, Kodak is subject to SEC-supervised securities laws and regulations and we have no reason to believe they have not met all necessary requirements,” Allen said.

Last December, the Blackstone Group dumped its stake in Kodak, according to SEC filings. At the same time, George Karfunkel, a billionaire investor, and his wife, Renee, bought more than 4 million shares, bringing their total to 6.7 million shares – or about 15 percent of the company, and Moses Marx, a billionaire real estate investor, bought 5.6 million shares, or about 13%.

Marx is chairman of the board of directors of The Berkshire Bank in Manhattan, and George Karfunkel is one of the bank’s directors, along with Joseph Fink and Philippe Katz, who have acquired Kodak shares with Marx through a number of companies, according to SEC records And Berkshire website. Katz and Fink are the genres of Marx, according to a 2013 SEC filing. George Karfunkel and Katz were members of the Kodak board of directors respectively from 2013 and 2019.

Marx, Karfunkel, Katz and Fink did not immediately respond to NBC’s effort to contact them via Berkshire Bank.

In essence, this small cohort of investors bought a substantial portion of the 44 million outstanding shares of a company that was in dire need of a breakthrough. At the time, Kodak was trading for around $ 2.50 per share, which is where it was 10 days ago.

And then the federal government came on the scene.

In October 2018, President Donald Trump signed a new clearance of laws governing the Federal Aviation Administration that included a number of unrelated provisions that created the US Development Finance Corporation. The idea, which had bipartisan support in both houses of Congress, was to help the United States compete with China for hearts and minds by expanding American project funding to developing countries.

Boehler, who would later become Kushner’s unofficial right hand on the work of the White House coronavirus task force, he was appointed to head the agency last year and told the Senate Foreign Relations Committee that he was dedicated to the foreign policy mission.

“From water purification in India to energy in El Salvador; from a clinic in Cameroon to thousands of loans to female entrepreneurs around the world, DFC will work to improve conditions in developing countries,” she said.

Born in the state of New York, Boehler is certainly aware that Rochester is not in a developing country. In May, Trump issued an executive order reversing the purpose of the law to allow the small agency to fund projects in the United States. Boehler advised the White House how to ensure that the granting of new powers by the executive order is in line with the agency’s “core capabilities,” according to Allen, who said the agency has dedicated 14 staff members to national projects and is continuing its global mission.

Sometime after the order was signed, White House Economic and Commercial Advisor Peter Navarro, Boehler and Kodak executives came up with blueprints for a deal in which the company would begin manufacturing pharmaceutical chemicals in exchange for a loan of The $ 765 million Allen said would be managed by the Pentagon under the Defense Production Act.

The company spread the word the previously secret agreement in a media advisory on July 27 that was quickly withdrawn, but the early public notice resulted in a run on its shares. On the same day, the company’s chief executive, James Continenza claimed 1.75 million stock options, priced between $ 3.03 and $ 12 per share in a previously undisclosed agreement with the company’s board of directors. The next day, July 28, the deal was publicly announced, creating a huge increase in the stock’s value.

Continenza was asked about the unusually heavy trading in Kodak stock on July 27, just before the deal was announced, in an interview with CNBC last week, but not about its stock.

“I mean, of course, this was a pretty well kept secret even until the last day,” Continenza said. “I can’t tell you what influenced this [the volume] or not … we have known for more than a week. “

The share price soared to $ 60 on July 29 before closing the week below $ 22 per share. On Tuesday, at the closing bell, it was under $ 15 per share. While the SEC does not require all transactions to be publicly disclosed, some activities are reported. The Karfunkels donated 3 million of their shares to the Chemdas Yisroel Congregation on July 29, which, depending on the time of the transfer, could have been worth up to $ 180 million.

This put the Karfunkels under the ownership threshold – 5 percent – at which must report further transactions to the SEC based on their holding, but George Karfunkel’s seat on the company’s board of directors means that their future sales are yet to be disclosed under another provision of the Securities Act. The value of the shares donated by the Karfunkels, like other charitable contributions, can be used to offset tax liabilities.

Marx sold about 250,000 shares of his stock in two lots – at $ 18.17 per share and $ 40.41 per share – for a total of about $ 9 million on July 29, bringing it below the 5% mark. It is impossible to know from the SEC documents whether Marx continued to sell his shares in the company, which he could legally do.

In an interview with Fox Business last week, Navarro described the deal as “fully secured,” which Laura Allen said would be done through real estate, equipment and purchase orders.

But it’s not close to being done. Kodak has simply gone through an initial authorization phase and still has to pass further tests to get the loan.

“These steps will take several months,” Allen said, “and we hope to complete the process by the end of the year.”

Hence, investors wreaked havoc without spending a dime.

Trump hailed it as “one of the most important deals in the history of US pharmaceutical industries” during remarks at the White House on July 28.

“My administration struck a historic deal with a big American company – you remember this company, it’s called, from the good old camera era, to the old days, to start making critical pharmaceutical ingredients – it’s called Kodak,” he said. Trump. “And it will be right here in America.”

The company never left. He was just sitting there with millions of cheap stocks, waiting for good news.

Stephanie Ruhle reported from New Jersey, Jonathan Allen from Washington.

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