KODAK : Insider Trading ?
(Fri, 31 July 2020). Insiders bought Eastman Kodak stock last month, but it probably wasn`t corporate executives. Who illegally benefitted from this week`s news? Trading volume in Eastman Kodak exploded higher the day before the $765 million government loan was announced. This reeks of insider trading, but can we be sure?
Kodak’s CEO bought nearly 47,000 shares in June. This week, the government announced a $765 million loan, and shares are up over 1,000%. Volume trends the day before the announcement also suggest insider trading. What’s the easiest way to make money in the stock market? By knowing before the public about a significant change and placing your bet ahead of time. Sure, it’s the illegal kind of insider trading, but it may have just happened at Eastman Kodak (NYSE:KODK).
Kodak Insiders Bought In June
In June, Kodak CEO Jim Continenza bought nearly 47,000 shares of his company. He paid a total of $2.22 per share, and the buy raised his total holdings to 650,000. Typically, corporate insider buys are an interesting investment indicator to watch. Insiders have many reasons to exercise and sell their holdings. Their only reason for buying comes down to the fact that shares seem undervalued. Fast-forward to today, and Continenza’s shares are now trading for around $40 per share. His recent buy alone increased his net worth by over $1.8 million. Does this rise to the level of insider trading? Possibly. The timing appears suspicious, as government loans and contracts take time to flesh out.
Aside from that, there doesn’t appear to be any insider trading here. The 47,000 shares increased his holdings by less than 10%, given the other shares he already held. The government contract could have fallen apart at the last minute. If any Kodak insider were confident of the loan happening, there would have been larger buys from additional insiders back in June.
Kodak Insider Buys YTD
Year-to-date, corporate insiders at Eastman Kodak have bought near the market lows and added in late June, suggesting no trading on advance knowledge of a government loan. Insider data for the year also show that Continenza bought in late March, right near the market bottom, paying around $1.50 per share. Several other significant owners and directors have been buyers this year as well. All this looks like is a case of reasonably good timing. That’s not a crime.
Other Insiders at Work?
While the U.S. government disclosed its $765 million loan to the photography company on Tuesday, volume on Kodak stock spiked on Monday. That may have been corporate insiders, although there have been no Form 4 filings with the SEC since then. It may have come from the family and friends of corporate insiders, but there’s no evidence yet. There still could be insider trading, however. After all, there was another party to the deal: Uncle Sam.
The real spike in volume may have come from government staffers in-the-know about the loan. Given the size of the loan, which exceeded the company’s market capitalization at the time, it’s a good bet that shares would head up. It’s also a good bet that the shift from photography equipment to pharmaceutical drug manufacturing would likewise send shares higher in today’s market environment.
Unlike at the corporate level, there’s little that the SEC or other regulatory agencies can do when government employees are aware of materially important information ahead of the public. It’s not the first time that government employees have been caught doing insider trading this year. So, chances are those who bought ahead of Tuesday’s announcement enjoyed a sizeable windfall in addition to their hefty government pensions.
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