It was a "Kodak moment" that Wall Street and Washington won't need a snapshot to remember.
When word leaked last week that the Trump administration was lining up a $765 million loan to the hard-luck company once synonymous with photography, shares of Kodak stock skyrocketed from a little over $2 apiece to $60 apiece before settling back down.
The company's chief executive officer and a small set of insiders 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 reports.
That required an uncanny chain of events starting with the investors acquiring millions of low-value shares of a company on the rocks, the Trump administration inverting the purpose of a foreign-development law and the shareholders riding a broader wave of market excitement over the government's newfound interest in Kodak to discover new riches.
"This loan seems like a highly questionable use of public money and raises questions about self-dealing and insider trading," Bharat Ramamurti, a member of the COVID-19 Congressional Oversight Commission, told NBC News.
Sen. Elizabeth Warren, D-Mass., demanded Tuesday that the SEC investigate whether the actions of certain investors amounted to illegal insider trading, and the Wall Street Journal reported that the regulator is, indeed, taking a look.
On the surface, the Trump administration found a creative way to help a large and struggling U.S. manufacturer in a hard-hit city — Rochester, N.Y. — by potentially providing capital to transition into producing chemicals for pharmaceuticals. But the stock surge was based only on a letter of intent — not an actual loan — from a new and little-known government agency called the U.S. Development Finance Corporation that was created to provide foreign aid and is run by White House Senior Adviser Jared Kushner's former roommate Adam Boehler.
Boehler doesn't have any concerns about stock transactions surrounding the deal, DFC spokesperson Laura Allen said in response to a series of questions sent over email.
"As a public company, Kodak is subject to securities laws and regulations overseen by the SEC, and we have no reason to believe they didn't comply with all necessary requirements," said Allen.
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 percent.
Marx is chairman of the board of The Berkshire Bank in Manhattan, and George Karfunkel is one of the bank's directors, along with Joseph Fink and Philippe Katz, who acquired stock in Kodak with Marx through a set of companies, according to SEC records and Berkshire's website. Katz and Fink are Marx's sons-in-law, according to a 2013 SEC filing. George Karfunkel and Katz have been members of Kodak’s board of directors since 2013 and 2019, respectively.
Marx, Karfunkel, Katz and Fink did not respond immediately to NBC’s effort to contact them through The Berkshire Bank.
Essentially, this small cohort of investors bought up a substantial portion of the 44 million outstanding shares of a company in dire need of a turnaround. At the time, Kodak was trading for about $2.50 per share, which is where it sat 10 days ago.
And then the federal government entered the picture.
In October 2018, President Donald Trump signed a reauthorization of the laws governing the Federal Aviation Administration that included an unrelated set of provisions creating the U.S. Development Finance Corporation. The idea, which had bipartisan support in both houses of Congress, was to help the U.S. compete with China for hearts and minds by expanding American project-financing to developing countries.
Boehler, who would go on to become Kushner's unofficial right hand on White House coronavirus task force work, was nominated to head the agency last year and told the Senate Foreign Relations Committee 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 women entrepreneurs throughout the world, DFC will work to improve conditions in developing countries," he said.
A native of upstate New York, Boehler is surely aware that Rochester is not in a developing country. In May, Trump issued an executive order inverting the purpose of the law to allow the tiny agency to finance projects in the United States. Boehler advised the White House on how to make sure the executive order's grant of new powers aligned with the agency's "core capabilities," according to Allen, who said the agency had dedicated 14 staff members to domestic projects and is continuing its global mission.
Sometime after order was signed, White House economic and trade adviser Peter Navarro, Boehler and Kodak executives worked out the blueprint for a deal in which the company would begin to make pharmaceutical chemicals in exchange for a $765 million loan that Allen said would be managed by the Pentagon under the Defense Production Act.
The company put out word of the previously secret agreement in a media advisory July 27 that was quickly pulled back, but the advance public notice prompted a run on its stock. On the same day, the company's CEO, James Continenza claimed 1.75 million stock options, priced between $3.03 and $12 per share in a previously undisclosed arrangement with the company's board. A day later, on July 28, the deal was announced publicly, creating a massive surge in the value of the stock.
Continenza was asked about unusually heavy trading of Kodak stock July 27, just before the deal was announced, in an interview on CNBC last week but not about his own stock.
"I mean obviously this has been a pretty tight-kept secret even until the last day,” Continenza said. “I couldn’t tell you what influenced that [the volume] or didn’t ... we knew for over a week.”
The share price rose as high as $60 on July 29 before closing the week under $22 per share. By the closing bell Tuesday, it was under $15 per share. Though the SEC doesn't require all trades to be publicly disclosed, some activity is reported. The Karfunkels donated 3 million of their shares to Congregation Chemdas Yisroel July 29, which, depending on the moment of transfer, could have been worth as much as $180 million.
That put the Karfunkels under the threshold of ownership — 5 percent — at which they must report further transactions to the SEC based on their stake, but George Karfunkel's seat on the company's board means their future sales still have to be disclosed under another provision of securities law. The value of the shares the Karfunkels donated, like other charitable contributions, can be used to offset tax liabilities.
Marx sold about 250,000 shares of his stock in two batches — at $18.17 per share and $40.41 per share — for a total of about $9 million on July 29, putting him under the 5 percent mark. It’s impossible to know from SEC filings whether Marx continued to sell his shares in the company, which he could do legally.
In an interview with Fox Business last week, Navarro described the deal as "fully collateralized," which Laura Allen said would be done through real estate, equipment and purchase orders.
But it isn't close to being done. Kodak simply cleared an initial clearance phase and still has to pass more 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."
So, investors made a killing without a dime being spent.
Trump hailed it as "one of the most important deals in the history of the U.S. pharmaceutical industries" during remarks at the White House July 28.
"My administration has reached a historic agreement with a great American company — you remember this company, it’s called, from the good, old camera age, the old days, to begin producing critical pharmaceutical ingredients — it’s called Kodak," Trump said. "And it’s going to be right here in America."
The company never left. It was just sitting there with millions of cheap shares, waiting for some good news.
Stephanie Ruhle reported from New Jersey, Jonathan Allen from Washington.